Question 16 5 pts Your all-equity firm has an asset beta of 1.00. Under CAPM, with a risk-free rate of 3 percent and a market risk premium of 5 percent, the equity has a required return of 8 percent. Management has decided to adjust the capital structure, changing the debt ratio to 40%, what will be new required return to equity, using Hamada's equation to adjust the equity beta? The firm faces a tax rate of 40%. 13% 9% 10% 11% 12% Your company is an all-equity firm with 300,000 shares outstanding. The company's EBIT Is $2,500,000, and EBIT Is expected to remain constant over time. The company pays out all It eamings each year, so Its earnings per share equal Its dividends per share. The corporate Income tax rate is 40%. The risk-free rate in the economy s 2%, and the market risk premium is 5%. The company's beta is currently 1.00. The company is considering Issul proceeds for a stock repurchase. If Issued, the bonds would have an estimated yield to maturity of2 percent (and that would be the annual coupon rate as well). The usual timeline will be followed: (1) the announcement is made that the firm will recapitallze, (2) ingbo 5 million worth of perpetual bonds (at par) and using the the market price of the stock changes in anticipation of the recapitalization, (3) the debt Is issued, and (4) the shares are immediately repurchased at the anticlpated price. What is the new equity beta after the entire transaction is complete? 1.266 1.222 1.202 O 1.182 1.244 s pe Assume that Flrm A Is an all-equity firm with total assets of $5,000 and the following distribution of EBIT for the coming year Frm A 3000% $500.00 $0.00 $500.00 $200.00 $300.00 10.00% 6.00% 6.00% 50 00% $800.00 $0.00 0$900.00 $380.00 $540.00 18.00% 10.80% EBIT $700.00 0.00 700.00 $280.00 $420.00 14,00% 8.40% 8.40% Interest EBT Taxes (40%) - Net Incorme BEP ROA ROE Now assume that the firm plans to issue $2,000 of debt, at an interest rate of 6.4 percent, and use the proceeds to repurchase equity (you may ignore potential impacts on price and assume that the firm will then have $3,000 of equity). Given this information, determine the coefficient of variation of the new ROE distribution. 0.3068 0.2849 0.2922 0.2995 0.3141