I asked this question previously and have some calculations, but now I am wondering if the formula
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Question:
I asked this question previously and have some calculations, but now I am wondering if the formula for levered equity should be used or WACC or CAPM??? Please help!
Thank you!
Company to issue $2.0 mil of perpetual debt and use the proceeds to repurchase common stock.
Bonds will sell at par, coupon rate 5%
company is all-equity worth $7.5 mil with 400,000 sharesof common stock outstanding.
Annual pre-tax earnings are $1.5 mil, this is expected to remain contact in perpetuity
Tax rate is 35%
What is the required return on the company's equity after restructuring?
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