Ch.13. The Pencil Company is currently all equity and has a beta of 0.8. The form has decided to move to a capital structure of one part debt to two parts equity. Because the firm is staying in the same industry, its asset beta should remain at 0.8. Assuming a zero beta, what is the equity beta? Round to one place past the decimal point as "X.X"

Ch.13. The Pencil Company is currently all equity and has a beta of 0.8. The form has decided to move to a capital structure of one part debt to two parts equity. Because the firm is staying in the same industry, its asset beta should remain at 0.8. Assuming a zero beta, what is the equity beta? Round to one place past the decimal point as "X.X"

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter15: Capital Structure Decisions

Section: Chapter Questions

Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...

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The Rivoli Company has no debt outstanding, and its financial position is given by the following data: What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share? Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Based on the new capital structure, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? Based on the new capital structure, what is the new stock price? What is the remaining number of shares? What is the new earnings per share?
The Pencil Company is currently all equity and has a beta of 0.8. The form has decided to move to a capital structure of one part debt to two parts equity. Because the firm is staying in the same industry, its asset beta should remain at 0.8. Assuming a zero beta, what is the equity beta? Round to one place past the decimal point as "X.X"
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