Question
Bluescreen Electronics is in the following situation: EBIT $4.2 million; tax rate 34%, debt outstanding $2.1 million, cost of debt 6%, cost of equity 14%,
Bluescreen Electronics is in the following situation: EBIT $4.2 million; tax rate 34%, debt outstanding $2.1 million, cost of debt 6%, cost of equity 14%, shares outstanding 600,000; book value per share $9. Bluescreen expects no growth and so all earnings are paid out in dividends. The debt consists of perpetual bonds.
- What are Bluescreens earnings per share (EPS) and price per share?
- What is Bluescreens Weighted Average Cost of Capital (WACC)?
- Bluescreen can increase its debt by $1.6 million and use this money to buy back shares at the current price. The new interest rate will be 7% for all its debt and the cost of equity will be 15%. Should Bluescreen make this change?
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The Routledge International Handbook Of Financialization
Authors: Philip Mader, Daniel Mertens, Natascha Van Der Zwan
1st Edition
