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Macbeth Spot Removers is entirely equity financed. Use the following information. Data Number of shares Price per share Market value of shares Expected operating income
Macbeth Spot Removers is entirely equity financed. Use the following information. Data Number of shares Price per share Market value of shares Expected operating income Return on assets 2,700 44 $118,800 $ 17,820 15% Macbeth now decides to issue $59,400 of debt and to use the proceeds to repurchase stock. Suppose that Ms. Macbeth's investment bankers have informed her that since the new issue of debt is risky, debtholders will demand a return of 10.8%, which is 3.2% above the risk-free interest rate. a. What are ra and re after the debt issue? (Enter your answers as a percent rounded to 2 decimal places.) Return on assets Return on equity b. Suppose that the beta of the unlevered stock was 0.60. What will bA, BE, and Bo be after the change to the capital structure? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Asset beta Debt beta Equity beta Macbeth Spot Removers is entirely equity financed. Use the following information. Data Number of shares Price per share Market value of shares Expected operating income Return on assets 2,700 44 $118,800 $ 17,820 15% Macbeth now decides to issue $59,400 of debt and to use the proceeds to repurchase stock. Suppose that Ms. Macbeth's investment bankers have informed her that since the new issue of debt is risky, debtholders will demand a return of 10.8%, which is 3.2% above the risk-free interest rate. a. What are ra and re after the debt issue? (Enter your answers as a percent rounded to 2 decimal places.) Return on assets Return on equity b. Suppose that the beta of the unlevered stock was 0.60. What will bA, BE, and Bo be after the change to the capital structure? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Asset beta Debt beta Equity beta
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