Question

In: Finance

Indell stock has a current market value of $120 million and a beta of 1.50. Indell...

  1. Indell stock has a current market value of $120 million and a beta of 1.50. Indell currently has risk-free debt as well. The firm decides to change its capital structure by issuing $30 million in additional risk-free debt, and then using this $30 million plus another $10 million in cash to repurchase stock. With perfect capital markets, what will be the beta of Indell stock after this transaction?

  1. Wolfrum Technology (WT) has no debt. Its assets will be worth $450 million in one year if the economy is strong, but only $200 million in one year if the economy is weak. Both events are equally likely. The market value today of its assets is $250 million.
  1. What is the expected return of WT stock without leverage?

  1. Suppose the risk-free interest rate is 5%. If WT borrows $100 million today at this rate and uses the proceeds to pay an immediate cash dividend, what will be the market value of its equity just after the dividend is paid?
  1. What is the expected return of WT stock after the dividend is paid in part (b)?

Solutions

Expert Solution

­

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

PORTFOLIO BETA A mutual fund manager has a $20 million portfolio with a beta of 1.50....
PORTFOLIO BETA A mutual fund manager has a $20 million portfolio with a beta of 1.50. The risk-free rate is 6.00%, and the market risk premium is 5.0%. The manager expects to receive an additional $5 million, which she plans to invest in a number of stocks. After investing the additional funds, she wants the fund's required return to be 12%. What should be the average beta of the new stocks added to the portfolio? Do not round intermediate calculations....
Piedmont Printing Company has a total market value of $120 million, consisting of 1 million shares...
Piedmont Printing Company has a total market value of $120 million, consisting of 1 million shares selling for $60 per share and $60 million of 9% perpetual bonds now selling at par. The company’s EBIT is $15.888 million, and its tax rate is 25%. Piedmont can change its capital structure by either increasing its debt to 65% or decreasing it to 35%. If it decides to increase its use of leverage, it must call its old bonds and replace them...
Piedmont Printing Company has a total market value of $120 million, consisting of 1 million shares...
Piedmont Printing Company has a total market value of $120 million, consisting of 1 million shares selling for $60 per share and $60 million of 9% perpetual bonds now selling at par. The company’s EBIT is $15.888 million, and its tax rate is 25%. Piedmont can change its capital structure by either increasing its debt to 65% or decreasing it to 35%. If it decides to increase its use of leverage, it must call its old bonds and replace them...
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?
Yan Corp has equity beta of 0.7 and 8 million ordinary shares, at the current market...
Yan Corp has equity beta of 0.7 and 8 million ordinary shares, at the current market price of RM5. The company also has debt with nominal value of RM100 per bond at 6% coupon rate, which will be redeemed in 5 years’ time at nominal rate. The bonds have a total nominal value of RM10 million. Interest on the bonds has just been paid and the current market value of each bond is RM106.30. Yan plans to acquire a business...
Apex Roofings's stock has a beta of 1.50, its required return is 17.00%, and the risk-free...
Apex Roofings's stock has a beta of 1.50, its required return is 17.00%, and the risk-free rate is 5.00%. What is the required rate of return on the stock market?
The Belfast Corp. has 40 million shares of common stock with a current market price of...
The Belfast Corp. has 40 million shares of common stock with a current market price of $14.00 per share. They have $270 million in par value of long-term bonds outstanding that currently sell for $935 per $1,000 par value. The bonds have a coupon rate of 7.6% and a maturity of 20 years. Assume annual coupon payments. Horizon also has 1 million shares of preferred stock with a current market price of $108 per share. The dividend on this preferred...
The Horizon Corp. has 60 million shares of common stock with a current market price of...
The Horizon Corp. has 60 million shares of common stock with a current market price of $24.00 per share. They have $400 million in par value of long-term bonds outstanding that currently sell for $1,075 per $1,000 par value. The bonds have a coupon rate of 8.5% and a maturity of 20 years. Assume semi-annual coupon payments. Horizon also has $220 million in par value of preferred stock with a current market price of $108 per $100 of par value....
The Centurion Corp. has 3 million shares of common stock with a current market price of...
The Centurion Corp. has 3 million shares of common stock with a current market price of $76.00 per share. The most recent dividend paid (i.e., D0) on these shares was $2.90. The growth rate for Centurion has been 7.2% in the past and is expected to continue in the future. Centurion has a beta of 1.3, the risk-free rate is 3.6%, and the return on the market is 10.1% Assume Centurion has $130 million in par value of long-term bonds...
Inputs Present Value Current stock Price $      62.00 Risk Free 2.5% Beta 1.1 Expected Market Return...
Inputs Present Value Current stock Price $      62.00 Risk Free 2.5% Beta 1.1 Expected Market Return 7.0% Dividend growth rate 6.0% Required Rate of Return PV Dividend This Year's Dividend This Year $        0.80 Growth Next Year $        0.92 15% 2 $        1.06 15% 3 $        1.22 15% Future Stock Price 3 6.0% Intrinsic Value Intrinsic Value
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT