Depending on the demand for your product, your sales are expected as follows: Demand Prob. Sales Low 0.2 41 Medium 0.7 53 High 0.1 70 EBIT is expected to be 23% of sales and the average tax rate is 34. There is no debt, the market value of equity is 430 and there are 40 shares outstanding. The company is thinking of borrowing $250 at an interest rate of 6% to repurchase its shares at the current market value. Part 1 What is the standard deviation of ROIC before the recapitalization? 5+ decimals

Depending on the demand for your product, your sales are expected as follows: Demand Prob. Sales Low 0.2 41 Medium 0.7 53 High 0.1 70 EBIT is expected to be 23% of sales and the average tax rate is 34. There is no debt, the market value of equity is 430 and there are 40 shares outstanding. The company is thinking of borrowing $250 at an interest rate of 6% to repurchase its shares at the current market value. Part 1 What is the standard deviation of ROIC before the recapitalization? 5+ decimals

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter16: Financial Planning And Control

Section: Chapter Questions

Problem 15PROB

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Plz use excel Meyer & Co. expects its EBIT to be $97,000 every year forever. The firm can borrow at 8 percent. The company currently has no debt, and its cost of equity is 13 percent. The tax rate is 24 percent. What is the value of the firm? What is the value if the company borrows $195,000 and uses the proceeds to repurchase shares? What is the cost of equity after recapitalization?What is the WACC? What are the implications of the firm’s decision to borrow?
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Plz Use excel !!! and show formula A company currently has a WACC of 10.6 percent and no debt. The tax rate is 21 percent. a. What is the company’s current cost of equity? b. If the firm converts to 40 percent debt with a cost of 6%, what will its cost of equity be? And the WACC? c. If the firm converts to 60 percent debt with a cost of 6% , what will its cost of equity be? And the WACC? d. What can you conclude from the values of the cost of equity and WACC obtained in b. and c.
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