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I am struggling with this question. Can anyone advise me on the process please? Astromet is financed entirely by common stock and has a beta
I am struggling with this question. Can anyone advise me on the process please?
Astromet is financed entirely by common stock and has a beta 1.60. The firm pays no taxes. The stock has a price-earnings multiple of 15.0 and is priced to offer a 10.5% expected return. The company decides to repurchase half the common stock and substitute an equal value of debt. Assume that the debt yields a risk-free 4.0%. Calculate the following: Required: a. The beta of the common stock after the refinancing b. The required return and risk premium on the common stock before the refinancing c. The required return and risk premium on the common stock after the refinancing d. The required return on the debt e. The required return on the company (i.e., stock and debt combined) after the refinancing If EBIT remains constant: f. What is the percentage increase in earnings per share after the refinancing? g-1. What is the new price-earnings multiple? g-2. Has anything happened to the stock priceStep by Step Solution
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