What is the expected return of the stock after transaction

Assignment Help Financial Management

Reference no: EM131575606

Global Pistons? (GP) has common stock with a market value of $460 million and debt with a value of $241 million. Investors expect a 16% return on the stock and a 9% return on the debt. Assume perfect capital markets.

a. Suppose GP issues $241 million of new stock to buy back the debt. What is the expected return of the stock after this? transaction?

b. Suppose instead GP issues $51.37 million of new debt to repurchase stock.

i. If the risk of the debt does not? change, what is the expected return of the stock after this? transaction?

ii. If the risk of the debt? increases, would the expected return of the stock be higher or lower than when debt is issued to repurchase stock in part (i?)?

Reference no: EM131575606

Questions Cloud

Investors are applying to renegotiated cash flows : What is the true discount rate (nominal annual rate with semi-annual compounding) investors are applying to the renegotiated cash flows?

Betas tend to revert toward zero over time : When using historical data, there is always the possibility of estimation error. Evidence suggests that betas tend to revert toward zero over time.

Mutual fund manager at atlas asset management : John Galt is a mutual fund manager at Atlas Asset Management.

Determine flitcrofts net income for the year : Given the following bits of information saved from the inferno, determine Flitcroft’s net income for the year.

What is the expected return of the stock after transaction : If the risk of the debt does not? change, what is the expected return of the stock after this? transaction?

Weighted-average cost of capital and the pre-tax wacc : The difference between the weighted-average cost of capital (WACC) and the pre-tax (unlevered) WACC is

What is your best estimate of the company cost of equity : If the stock sells for $39 per share, what is your best estimate of the company's cost of equity?

Discuss the factors affecting divided policy : Discuss the factors affecting Divided Policy under each of the following headings:

About the consequences of theft that had recently occurred : What Should Rosemary do in this situation? Rosemary Worth was talking about the consequences of a theft that had recently occurred at the business she owned,

User Account

All Pages