What are BEA's new beta and cost of equity if it has 40% debt? Do not round intermediate calculations. Round your answers to two decimal places. Beta: Cost of equity: What is BEA's WACC with 40% debt? Do not round intermediate calculations. Round your answer to two decimal places. $ tA % What is the total value of the firm with 40% debt? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answer to three decimal places. % million
What are BEA's new beta and cost of equity if it has 40% debt? Do not round intermediate calculations. Round your answers to two decimal places. Beta: Cost of equity: What is BEA's WACC with 40% debt? Do not round intermediate calculations. Round your answer to two decimal places. $ tA % What is the total value of the firm with 40% debt? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answer to three decimal places. % million
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![### Exercise: Calculating Financial Metrics for a Firm with Debt
**Question 1:**
What are BEA's new beta and cost of equity if it has 40% debt? Do not round intermediate calculations. Round your answers to two decimal places.
- **Beta:** [Input Box]
- **Cost of equity:** [Input Box] %
**Question 2:**
What is BEA's WACC with 40% debt? Do not round intermediate calculations. Round your answer to two decimal places.
- [Input Box] %
**Question 3:**
What is the total value of the firm with 40% debt? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answer to three decimal places.
- $ [Input Box] million
These exercises are designed to help you understand how to calculate important financial metrics like beta, cost of equity, weighted average cost of capital (WACC), and the total value of a firm considering debt. Be sure to follow the instructions on rounding for accuracy.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe9d9a5f0-fe4e-422d-8c50-a22c93ec0936%2F1362f1eb-dfc3-47dd-aecd-db353f5ffd89%2Fht45s8u_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Exercise: Calculating Financial Metrics for a Firm with Debt
**Question 1:**
What are BEA's new beta and cost of equity if it has 40% debt? Do not round intermediate calculations. Round your answers to two decimal places.
- **Beta:** [Input Box]
- **Cost of equity:** [Input Box] %
**Question 2:**
What is BEA's WACC with 40% debt? Do not round intermediate calculations. Round your answer to two decimal places.
- [Input Box] %
**Question 3:**
What is the total value of the firm with 40% debt? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answer to three decimal places.
- $ [Input Box] million
These exercises are designed to help you understand how to calculate important financial metrics like beta, cost of equity, weighted average cost of capital (WACC), and the total value of a firm considering debt. Be sure to follow the instructions on rounding for accuracy.
![**Optimal Capital Structure with Hamada**
Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 8%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero-growth firm and pays out all of its earnings as dividends. The firm's EBIT is $18 million, and it faces a 25% federal-plus-state tax rate. The market risk premium is 4%, and the risk-free rate is 6%.
BEA is considering increasing its debt level to a capital structure with 40% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 10%. BEA has a beta of 1.2.
a. **What is BEA's unlevered beta?** Use market value D/S (which is the same as \( w_d/w_s \)) when unlevering. Do not round intermediate calculations. Round your answer to two decimal places.
[Input Box]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe9d9a5f0-fe4e-422d-8c50-a22c93ec0936%2F1362f1eb-dfc3-47dd-aecd-db353f5ffd89%2Fusb2ufq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Optimal Capital Structure with Hamada**
Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 8%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero-growth firm and pays out all of its earnings as dividends. The firm's EBIT is $18 million, and it faces a 25% federal-plus-state tax rate. The market risk premium is 4%, and the risk-free rate is 6%.
BEA is considering increasing its debt level to a capital structure with 40% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 10%. BEA has a beta of 1.2.
a. **What is BEA's unlevered beta?** Use market value D/S (which is the same as \( w_d/w_s \)) when unlevering. Do not round intermediate calculations. Round your answer to two decimal places.
[Input Box]
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