Rate of return on equity under the new capital structure

Assignment Help Financial Management

Reference no: EM131859713

You have the following data on The Home Depot, Inc. Market value of long-term debt: $20,888 million Market value of common stock: $171,138 million Beta: 1.04 Yield to maturity on debt with 10 years to maturity: 2.167% Expected return on equity: 8.45% Marginal tax rate: 35% Assume that if Home Depot issues new bonds, the bonds will have 10 years to maturity. Suppose that managers at Home Depot decide to increase the proportion of debt to 20% of the value of the company. The managers estimate that yield on the company’s 10 year bonds will rise to 2.373% if the company changes its capital structure in this manner. What would be the expected rate of return on equity under the new capital structure?

Reference no: EM131859713

Questions Cloud

Calculate the combined future value at the end of year : Calculate the combined future value at the end of year 3 of $1,000 received at the end of year 1, $3,000 received at the end of year 2,

Earn in order to break even in economic terms : How much profit will your equity holders need to earn in order to break even in economic terms (i.e., EVA of zero)?

Account for ashley to pay for her college expenses : Will there be enough money in the account for Ashley to pay for her college expenses? Assume the rate of interest stays at 8 percent during the college years.

What leverage ratio must farmer achieve in order : What leverage ratio must a farmer achieve in order to grow at a 12% rate?

Rate of return on equity under the new capital structure : if the company changes its capital structure in this manner. What would be the expected rate of return on equity under the new capital structure?

Decide not to participate in rights offering : If you currently own 3,000 shares of stock in the company and decide not to participate in the rights offering,

Appropriate method to calculate firm value : create an initial discussion post in which you explain which method is the more appropriate method to calculate firm value, and why.

Pros and the cons of currency controls in emerging markets : There are several ways to avoid emerging market crises. What are the pros and the cons of currency controls in emerging markets?

Charge of implementing marketing analytics into organization : If you were in charge of implementing marketing analytics into an organization,

User Account

All Pages