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Brown Inc. is considering changing its capital structure. Brown currently has $100 million in debt that carries a 6% interest rate. Its stock currently sells for $25 a share and there are 20 million shares outstanding. Brown is a zero growth firm and pays out all its earnings as dividends. Brown's EBIT is $20 million and the tax rate is 35%. The risk free rate is 3% and the market risk premium is 5%. Brown is considering increasing its debt to 40% and buying back stock with the money it raises. New debt could be sold for 8%. Brown's beta is currently 1.2.
a. What is Brown's unlevered beta?
b. What will the beta and the cost of equity be after the recapitalization?
c. What is the WACC before and after the capital structure change. Should Brown increase their debt to 40%?
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The work function (i.e binding energy) W, of cesium of metal is 3.43 x 10^-19 J. Calculate the kinetic energy of the ejected electron if light of frequency 1.00 x 10^15 s-1 is used for irradiating the metal.
Given that investors who might invest in your project have the opportunity to invest in XZX Co., what is the opportunity cost of capital for your project? That is, what is the return investors in XZX Co. must be demanding is they are willing to pa..
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What would the appropriate tax rate be for use in the calculation of the debt component of LilyMac's WACC?
Using the following data on Bear Company and the dividend discount model, compute the value of Bear Corporation's stock.
At December 31, 2013, Vega Vaccum Corporation has cash in bank of 104,000, restricted cash in a separate account of $19,000, and a bank overdraft at another bank of $500. How much should it report as cash on the balance sheet?
The June Treasury bond futures contract has a quoted price of 102'12. What is the current value of one contract in dollars?
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Lewis Morris Crew spends $350,000 in bureaucratic expenses in their IPO. The underwriter sells three million shares at an offer price of $9.63, charging Lewis Morris Crew fifty cents per share in spread.
Merger activity continues to be a much-used strategic option. From 2008 to 2009, M&A activity completed totaled approximately $5 trillion.
What is the fee the company must pay on the unused balance? What is the effective interest rate?
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