Question :

use the information above and find beta, cost of equity, WACC, value of operation, value of debt, value of equity, stock price, shares repurchased, and remaining shares outstanding at 35% debt level assuming the company decides to recapitalize from all equity to 35% debt.

Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The company's EBIT was $ 100 million last year and is not expected to grow. The firm is currently financed with all equity, and it has 20 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms' owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm's investment banker the following estimated costs of debt for the firm at different capital structures: Percent Financed with Debt, W. R 0% 15% 5% 25% 7% 35% 11% 55% 15% If the company were to recapitalize, then debt would be issued, and the funds received would be used to repurchase stock. PizzaPalace is in the 40% state-plus-federal corporate tax bracket, its beta is 1.5, the risk-free rate is 5%, and the market risk premium is 7%. Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The company's EBIT was $ 100 million last year and is not expected to grow. The firm is currently financed with all equity, and it has 20 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms' owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm's investment banker the following estimated costs of debt for the firm at different capital structures: Percent Financed with Debt, W. R 0% 15% 5% 25% 7% 35% 11% 55% 15% If the company were to recapitalize, then debt would be issued, and the funds received would be used to repurchase stock. PizzaPalace is in the 40% state-plus-federal corporate tax bracket, its beta is 1.5, the risk-free rate is 5%, and the market risk premium is 7%