EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202778
Author: DeMarzo
Publisher: PEARSON CUSTOM PUB.(CONSIGNMENT)
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Chapter 14, Problem 19P
Summary Introduction
To Determine: The beta of IN stocks.
Beta is an important indicator of the risk of a security. It measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
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Indell stock has a current market value of $130 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 $27.79 million in additional risk-free debt, and then using
this $27.79 million plus another $17 million in cash to repurchase stock. With perfect capital markets, what will the
beta of Indell stock be after this transaction?
The beta of Indell stock after the recapitalization is
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(Round to two decimal places.)
Indell stock has a current market value of $150 million and a beta of 2.00. Indell currently has risk-free debt as well. The firm decides to change its capital structure by issuing $41.02 million in additional risk free debt, and then using this $41.02 million plus another $10 million in cash to repurchase stock. With perfect capital markets, what will the beta of Indell stock be after this transaction? %? (Round to two decimal places.)
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You are thinking of buying a stock priced at $109.31 per share. Assume that the risk-free rate is about 4.03% and
the market risk premium is 6.48%. If you think the stock will rise to $118.76 per share by the end of the year, at
which time it will pay a $3.48 dividend, what beta would it need to have for this expectation to be consistent with
the CAPM?
The beta is
(Round to two decimal places.)
...
Chapter 14 Solutions
EBK CORPORATE FINANCE
Ch. 14.1 - How does the risk and cost of capital of levered...Ch. 14.2 - Why are investors indifferent to the firms capital...Ch. 14.2 - What is a market value balance sheet?Ch. 14.2 - In a perfect capital market, how will a firms...Ch. 14.3 - How do we compute the weighted average cost of...Ch. 14.3 - With perfect capital markets, as a firm increases...Ch. 14.4 - If a change in leverage raises a firm's earnings...Ch. 14.4 - True or False: When a firm issues equity, it...Ch. 14.5 - Consider the questions facing Dan Harris, CFO of...Ch. 14.5 - Prob. 2CC
Ch. 14 - Consider a project with free cash flows in one...Ch. 14 - You are an entrepreneur starting a biotechnology...Ch. 14 - Acort Industries owns assets that will have an 80%...Ch. 14 - Wolfrum Technology (WT) has no debt. Its assets...Ch. 14 - Suppose there are no taxes. Firm ABC has no debt,...Ch. 14 - Suppose Alpha Industries and Omega Technology have...Ch. 14 - Prob. 7PCh. 14 - Prob. 8PCh. 14 - Zetatron is an all-equity firm with 100 million...Ch. 14 - Explain what is wrong with the following argument:...Ch. 14 - Consider the entrepreneur described in Section...Ch. 14 - Hardmon Enterprises is currently an all-equity...Ch. 14 - Suppose Visa Inc. (V) has no debt and an equity...Ch. 14 - Prob. 14PCh. 14 - Prob. 15PCh. 14 - Hartford Mining has 50 million shares that are...Ch. 14 - Mercer Corp. has 10 million shares outstanding and...Ch. 14 - In mid-2015 Qualcomm Inc. had 11 billion in debt,...Ch. 14 - Prob. 19PCh. 14 - Prob. 20PCh. 14 - Yerba Industries is an all-equity firm whose stock...Ch. 14 - Prob. 22PCh. 14 - Prob. 23PCh. 14 - Prob. 24P
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY