Barnes Baskets, Inc (BB) currently has zero debt Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company BBs current cost of equity is 13 and its tax rate is 40 The firm has 20,000 shares of common stock outstanding selling at a price per share of $23 08 Part I B...

Part I Computation of the following Formula WACC w c r s w d ...

Barnes Baskets, Inc. (BB) currently has zero debt. Its earnings before interest and taxes (EBIT) are $100,000,

Question:

Barnes Baskets, Inc. (BB) currently has zero debt. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. BB’s current is 13% and its tax rate is 40%. The firm has 20,000 shares of outstanding selling at a price per share of $23.08.
Part I:
BB is considering moving to a that is comprised of 20% debt and 80% equity, based on market values. The debt would have an interest rate of 7%. The new funds would be used to repurchase stock. It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise to 14%. If this plan were carried out, what would BB's new value of operations be?
Part II:
Now assume that BB is considering changing from its original to a new with 45% debt and 55% equity. This results in a weighted average equal to 10.4% and a new value of operations of $576,923. Assume BB raises $259,615 in new debt and purchases T-bills to hold until it makes the stock repurchase. What is the stock price per share immediately after issuing the debt but prior to the repurchase?

Common Stock
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Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Capital
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The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...