Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / Spam Corp
Spam Corp. is financed entirely by common stock and has a beta of 1.05. The firm is expected to generate a level, perpetual stream of earnings and dividends. The stock has a price-earnings ratio of 7.20 and a cost of equity of 13.89%. The company's stock is selling for $66. 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 exempt from corporate income taxes. Assume MM are correct.
1) Calculate the cost of equity after the refinancing. (Enter your answer as a percent rounded to 2 decimal places.)
2) Calculate the overall cost of capital (WACC) after the refinancing. (Enter your answer as a percent rounded to 2 decimal places.)
3) Calculate the price-earnings ratio after the refinancing. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
4) Calculate the stock price after the refinancing.
5) Calculate the stock's beta after the refinancing. (Round your answer to 1 decimal place.)
Already member? Sign In
