- Spam Corp. is financed entirely by common stock and has a beta of 1.30. The...

- Spam Corp. is financed entirely by common stock and has a beta of 1.30. The firm is expected to generate a level, perpetual stream of earnings and dividends. The stock has a price-earnings ratio of 8 and a cost of equity of 12.5%. The company’s stock is selling for $50. Now the firm decides to repurchase half of its shares and substitute an equal value of debt. The debt is risk-free, with an interest rate of 3%. The company is exempt from corporate income taxes. a. Calculate the cost of equity after the refinancing. b. Calculate the price-earnings ratio after the refinancing. c. Calculate the stock’s beta after the refinancing.

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jeff jeffy answered 5 months ago

Spam Corp. is financed entirely by common stock and has a beta of .75. The firm...

Spam Corp. is financed entirely by common stock and has a beta of .75. The firm is expected to generate a level, perpetual stream of earnings and dividends. The stock has a price-earnings ratio of 7.80 and a cost of equity of 12.82%. The company’s stock is selling for $54. Now the firm decides to repurchase half of its shares and substitute an equal value of debt. The debt is risk-free, with an interest rate of 3.5%. The company is...

ABC Corp. is financed entirely by common stock and has a beta of 1.0. The firm...

ABC Corp. is financed entirely by common stock and has a beta of 1.0. The firm is expected to generate a level, perpetual stream of earnings and dividends. The stock has a price–earnings ratio of 8 and a cost of equity of 12.5%. The company's stock is selling for $50. Now the firm decides to repurchase half of its shares and substitute an equal value of debt. The debt is risk-free, with a 5% interest rate. The company is exempt...

Knarfappaz Co. pays no taxes and is financed entirely by common stock. The stock has a...

Knarfappaz Co. pays no taxes and is financed entirely by common stock. The stock has a beta of 0.8 and a price-earnings ratio of 12.5 and is priced to offer an 8% expected return. Knarfappaz now decides to repurchase half the common stock and substitute an equal value of debt. If the debt yields a riskfree 5%, calculate: A. The beta of the common stock after the refinancing; B. The required return and risk premium on the stock before the...

Fusilli Jerry Corp's common stock has a beta of 1.30. If the risk free rate of...

Fusilli Jerry Corp's common stock has a beta of 1.30. If the risk free rate of return is expected to be 4% and the market risk premium is 10%, what is the required return on Fusilli Jerry Corp's common stock? 53.00 17.00 74.20 22.20

Stock A's stock has a beta of 1.30, and its required return is 14.75%. Stock B's...

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(2) Stock Y has a beta of 1.30 and an expected return of 15.3%. Stock Z...

(2) Stock Y has a beta of 1.30 and an expected return of 15.3%. Stock Z has a beta of 0.70 and an expected return of 9.3%. If the risk-free rate is 5.5% and the market risk premium is 6.8%, are these stocks correctly priced? ( 3) You have one million USD and want to create a portfolio equally as risky as the market. Given this information, fill in the rest of the following table: Asset Investment Beta Stock A...

zuber inc stock has a beta of 1.30, the risk free rate is 1.50% and the...

zuber inc stock has a beta of 1.30, the risk free rate is 1.50% and the market portfolio return is 9.0%. what is the firms required rate of return?

The common stock of ABC, Inc. has a beta of 0.68 and a standarddeviation of...

The common stock of ABC, Inc. has a beta of 0.68 and a standard deviation of 18.02%. The expected return on the market is 19.51% and the risk-free rate is 3.87%. What is the cost of equity for this firm?

Digital Fruit is financed solely by common stock and has outstanding 38 million shares with a...

Digital Fruit is financed solely by common stock and has outstanding 38 million shares with a market price of $20 a share. It now announces that it intends to issue $290 million of debt and to use the proceeds to buy back common stock. There are no taxes. a. What is the expected market price of the common stock after the announcement? b. How many shares can the company buy back with the $290 million of new debt that it...

Suppose that American Eagle Outtters, headquartered in SouthsideWorks, is financed solely by common stock. It has...

Suppose that American Eagle Outtters, headquartered in SouthsideWorks, is financed solely by common stock. It has 170 million shares outstanding at a price of $18 per share. It announces that it intends to issue $1 billion of debt and use the proceeds to buy back common stock. The debt beta will be zero. The risk-free rate is 2%, the expected return on the market portfolio is 9.7%, and American Eagle Outtters's asset beta is 1.2. (a) How is the market...

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