Reference no: EM131872273

Shahiro Inc. has ¥325,000,000 in total assets. The company's current capital structure consists of 25 percent debt and 75 percent common equity. Currently, the company's before-tax cost of debt is 8 percent. The risk-free rate (k_RF) is 5 percent and the market risk premium (k_m - k_RF) is also 5 percent. At the firm's current capital structure, the company's beta is 1.15 (i.e., its current cost of common equity is 10.75 percent). Stewart's operating income (EBIT) for the last year was ¥35.43 million, its interest expense is ¥6.43 million, and its tax rate is 30 percent. The company has 200,000 outstanding shares of common stock. The company's net income is currently ¥26.20, and its earnings per share (EPS) is ¥131. The company pays out all of its earnings as dividends (EPS = DPS), and hence its growth rate is zero. Therefore, its stock price is simply EPS/k_e; where k_e is the cost of common equity. It follows that the company's stock price is currently ¥1218 (¥131/0.1075).

What is the company's WACC?

What would be the company's earnings per share, if it adopts a capital structure with 50 percent debt and 50 percent common equity?