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Assume that you have just been hired as business manager of Campus Deli ( CD ) , which is located adjacent to the campus. Its
Assume that you have just been hired as business manager of Campus DeliCD which is located adjacent to the campus. Its Free Cash FlowFCF is $ Because the university's enrollment is capped, FCF is expected to be constant over time. Because no expansion capital is required, CD pays out all earnings as dividends. CD currently has no debtit is an allequity firmand its shares outstanding selling at $ per share. The firm's federalplusstate tax rate is On the basis of statements made in your finance text, you believe that CDs shareholders would be better off if some debt financing was used. When you suggested this to your new boss, she encouraged you to pursue the idea but to provide support for the suggestion. In today's market, the riskfree rate is and the market risk premium is CDs unlevered beta is CD currently has no debt, so its cost of equity and WACC is If the firm was recapitalized, debt would be issued and the borrowed funds would be used to repurchase stock. After speaking with a local investment banker, you obtain the following estimates of the cost of debt at different debt levels in thousands of dollars: tableDebtAsset Ratio,Bond Rating,YieldAA Using excel
Assume that you have just been hired as business manager of Campus DeliCD which is located adjacent to the campus. Its Free Cash FlowFCF is $ Because the university's enrollment is capped, FCF is expected to be constant over time. Because no expansion capital is required, CD pays out all earnings as dividends. CD currently has no debtit is an allequity firmand its shares outstanding selling at $ per share. The firm's federalplusstate tax rate is
On the basis of statements made in your finance text, you believe that CDs shareholders would be better off if some debt financing was used. When you suggested this to your new boss, she encouraged you to pursue the idea but to provide support for the suggestion.
In today's market, the riskfree rate is and the market risk premium is CDs unlevered beta is CD currently has no debt, so its cost of equity and WACC is If the firm was recapitalized, debt would be issued and the borrowed funds would be used to repurchase stock. After speaking with a local investment banker, you obtain the following estimates of the cost of debt at different debt levels in thousands of dollars:
tableDebtAsset Ratio,Bond Rating,YieldAA Using excel
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