Question
A firm is currently financed 40% by equity and 60% by debt. EBIT is $6 million per year constant forever. Equity beta is 1.5. 10
A firm is currently financed 40% by equity and 60% by debt.
EBIT is $6 million per year constant forever.
Equity beta is 1.5.
10 million shares outstanding.
Debt is risk-free and yields 3%.
Market risk premium is 6%.
What is the FCF?
What is the enterprise value?
What is the share price of each share?
What is the asset beta?
Firm decides to raise an additional 6 million in equity and to use the proceeds to pay off debt at face value.
What is the cost of equity?
What is the new WACC?
What is the new share price?
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Introduction to Finance Markets, Investments and Financial Management
Authors: Ronald W. Melicher, Edgar A. Norton
16th edition
1119398282, 978-1-119-3211, 1119321115, 978-1119398288
