Question
BNP Inc. is an all-equity firm with 12,000 shares outstanding. The current stock price is $40 per share. The company is planning to issue a
BNP Inc. is an all-equity firm with 12,000 shares outstanding. The current stock price is $40 per share. The company is planning to issue a perpetual debt to buy back its stocks. It can either borrow $120,000 at 4% or $180,000 at 6%. The current EBIT is $120,000 and the tax rate is 30%. [Keep at least 2 decimal places for dollar amounts and 4 decimal places for rates]
- Calculate the current cost of capital.
- Calculate the debt equity ratios after the two recapitalization plans.
- Calculate the cost of equity after the two recapitalization plans.
- Calculate the stock prices after the two recapitalization plans.
- Calculate the breakeven EBIT between the two proposed recapitalization plans.
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Foundations of Finance The Logic and Practice of Financial Management
Authors: Arthur J. Keown, John D. Martin, J. William Petty
8th edition
132994879, 978-0132994873
