Estimate the companys new market beta

Assignment Help Corporate Finance
Reference no: EM13836684

REVIEW QUESTIONS

1. Sao Paolo Foods is a Brazilian producer of breads and other baked goods. Over the past year, profitability has been strong and the share price has risen from R$15 per share to R$25 per share. The company has 20 million shares outstanding. The company's borrowing is conservative; the company has only R$100 million in debt. The debt trades at a yield to maturity 50 basis points above Brazilian risk-free bonds. Sao Paolo Foods has a market beta of 0.7. If the Brazilian risk-free rate is 7 percent, the market risk premium is 5 percent, and the marginal tax rate is 30 percent, what is Sao Paolo's cost of capital?

2. Sao Paolo Foods is considering a leveraged recapitalization of the company. Upon announcement, management expects the share price to rise by 10 percent. If the company raises R$200 million in new debt to repurchase shares, how many shares can the company re¬purchase? Assuming management will actively manage to the new capital structure, estimate the company's new market beta. If the company's cost of debt rises to 100 basis points above the Brazilian risk-free rate, what will its new cost of capital equal?

Reference no: EM13836684

Questions Cloud

Characteristics of corporate governance mechanisms : You are required to: Critically discuss, with reference to contrasting views and theoretical perspectives in the literature, the nature and characteristics of corporate governance mechanisms that are effective in enabling corporate accountability ..
Use the latest hourly median sales price and buy and sell : Use the latest hourly Median Sales Price and Buy and Sell Orders (Cumulative) to approximate Supply and Demand data.  Plot your data points on a diagram with price on the vertical axis and quantity on the horizontal axis.  (Your 'Supply' and 'Demand'..
Explain incentive plans can influence performance measures : Incentive plans can influence performance measures by providing intrinsic and/or extrinsic motivation to complete tasks more efficiently and work toward goal congruence.
Explain how trade works by breaking it down : 1. Consider two individuals, Fred and Barney. In one hour, Fred can produce either 15 gallons of beer, or 3 gallons of wine. In one hour, Barney can produce 2 gallons of beer or 4 gallons of wine. Assume both goods can be produced in continuous quant..
Estimate the companys new market beta : Estimate the company's new market beta. If the company's cost of debt rises to 100 basis points above the Brazilian risk-free rate, what will its new cost of capital equal?
Substitute goods for time in the production of commodities : An explanation for my labor economics course A household will tend to substitute goods for time in the production of commodities if: a. a household member's market wage increases b. a household member's market wage decreases c. the substitution effec..
Subscribing to economist analyst today magazine : Suppose that you are considering subscribing to Economist Analyst Today magazine. The magazine is advertising a one-year subscription for $60 or a two-year subscription for $115. You plan to keep getting the magazine for at least two years. The adver..
Second possibility is purchasing a meal at school cafeteria : 1. A student has a budget of $200 for their meals outside of the home per week. One possibility is purchasing a meal at a restaurant, which  we will call x1, and which costs $20, and a second possibility is purchasing a meal at the school cafeteria, ..
Explain how compensation could inspire individuals : Explain why the analyst earlier report was not followed by an SEC investigation. Do you think that Nacchio's compensation scheme played any role in the fraud?

Reviews

Write a Review

 

Corporate Finance Questions & Answers

  Firm a has 10000 in assets entirely financed with equity

firm a has 10000 in assets entirely financed with equity. firm b also has 10000 in assets but these assets are financed

  Explain the points off inancial impact on a company

Explain why the present value of a stream of cash flow and assets associated there with, fluctuate in value with the level of interest rates in the bond markets.

  Capital structure of the firm based on market values

Which projects would you suggest that Fairfield act upon if no capital rationing and what is the optimal capital budget ANDtaking into consideration the $11 million capital rationing which projects would suggest Fairfield act upon?

  Analysis of the firms financial statements

Based on your analysis of the firms financial statements and any relevant supplementary information you can obtain about the firm and its operating environment

  Discuss the reliability of the model

Define and contrast idiosyncratic and systematic risk and the risk premium required for taking each on. Can beta be helpful in this instance? Explain your answer.

  Determine the current rate of return on risk-free assets

Determine the current rate of return on risk-free assets and determine beta for Ford Motor Company from an internet financial site such as Yahoo-Financial.(Do they need to estimate beta or can they just get it from Yahoo-Finance).

  How financial intermediaries profit from the transformation

What are the economic functions that financial intermediaries perform that benefit society? In your answer, discuss the relationship of financial intermediaries and financial markets

  What would be the selling price of the product

Explain explain the relationship between total revenue, marginal revenue and profit and what would be the selling price of the product?

  What is the value of the stock today

Simpkins Corporation is expanding rapidly, and it currently needs to retain all of its earnings; hence it does not pay any dividends.

  Corporate compliance group written assignment and

corporate compliance group written assignment and presentationyou have been hired by the exxon-valdez subsidiary as the

  How the expected return varies with beta

Draw a graph showing how the expected return varies with beta, what is the market risk premium and what is the required rate of return on an investment with a beta of 1.5?

  What did index provider msci determine regarding china

TOPICS: International Stock Market SUMMARY: Index provider MSCI (Morgan Stanley Capital International) said Tuesday that it would add China's A-shares, those stocks denominated in yuan and listed in either Shanghai or Shenzhen, to its widely tracked ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd