Mersaco has a Capital Structure of 40% Debt and 60% Equity, and has provided you with the following information:

YTM (rd) 10% Risk Free Rate (rf) 3% Market Risk Premium (MRP) 6% Cost Of Equity, rs(current) 12% Tax Rate 40% EPS(current) $4

1. What is the Companys stock price at the current debt ratio 40%? *

$10

$32.78

$33.33

$23

None of the above

2. What is the Current Beta of the companys common stock at the current debt ratio 40%? *

2.15

5.12

1.50

1.20

None of the above

3. What would be the Beta of the stock if the company had no debt in its capital structure, thats what is Bu? *

0.7895

1.0714

1.25

Zero

None of the above

4. If the company changes its capital structure to 50% debt and 50 % equity, YTM (rd) would rise to 11% keeping the same Tax rate. In this case, what would be the companys new Beta, thats what is BL new? *

1.71424

1.25055

1.15842

1.00000

None of the above

5. What would be the Companys new cost of equity, rs(new) at debt ratio 50%? *

15.028%

13.285%

12.102%

11.375%

None of the above

6. What would be the Companys new Weighted Average Cost of Capital (WACC) at debt ratio 50%? *

12.14%

10.55%

9.94%

5.50%

None of the above

7. If the Company changes its capital structure to 50% debt and 50 % equity, its EPS would rise to $4.75. In this Case, the companys new stock price will: *

Increase by $0.75

12:15 PN Problem One Mersaco has a Capital Structure of 40% Debt and 60% Equity, and has provided you with the following information: YTM (rd) Risk Free Rate (rf) Market Risk Premium (MRP) Cost Of Equity,rs(current) Tax Rate EPS(current) 10% 3% 6% 12% 40% $4 1. What is the Company's stock price at the current debt ratio 40%?* $10 $32.78 $33.33 $23 None of the above III 0