Indell stock has a current market value of $120 million
and a beta of 1.50. Indell...
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?
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.
What is the expected return of WT stock without
leverage?
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?
What is the expected return of WT stock after the
dividend is paid in part (b)?
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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 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 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...
Polecat plc has 18 million $0.50 ordinary shares in issue. The
current stock market value of these is $1.70 per share. The
directors have decided to make a one-for-three rights issue at
$1.25 each. Julie owns 3,000 Polecat ordinary shares. Assuming that
the rights issue will be the only influence on the share price:
(a) What, in theory, will be the ex-rights price of the shares
(that is, the price of the shares once the rights issue has taken
place)? ...
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 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 $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 $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 $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...