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A firm that has zero debt and zero preferred stock is thinking about borrowing money. Their...

A firm that has zero debt and zero preferred stock is thinking about borrowing money. Their capital structure policy allows them a maximum of 40% debt. They currently have a beta of 0.85 and a 35% corporate tax rate. They would like to keep their beta at 1.15 or lower. Can they maximize debt at 40% while meeting their beta goal?

Question 1 options:

Yes, the levered beta is 1.22 at 40% debt.

No, the levered beta is 1.22 at 40% debt.

Yes, the levered beta is 1.50 at 40% debt.

No, the levered beta is 1.50 at 40% debt.

What's the new stock price for a firm with the following information?

Old Debt Level: 0%

New Debt Level: 45%

No preferred stock

FCF0: $65,000,000

Constant growth: 2%

WACC: 9.4709%

Shares: 15,000,000

Question 3 options: A)$32.54 B)$26.62 C)$59.16

Solutions

Expert Solution

jeff jeffy answered 2 years ago
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