Question
Roberts Engineering and Associates (REA) is considering a change in its capital structure. wD = weight of current debt 29% rD = current cost of
Roberts Engineering and Associates (REA) is considering a change in its capital structure.
| wD = weight of current debt | 29% | |
| rD = current cost of debt | 6.5% | |
| REA stock price | $ 35.00 | |
| REA shares outstanding | 2,250,000.00 | |
| REA EBIT | 13,500,000.00 | |
| T = tax rate | 29% | |
| rM-rRF=Market risk premium | 5.00% | |
| rRF = risk-free rate | 5.00% | |
| rND = cost of new debt | 8.50% | |
| wND = weight of new debt | 40% | for part b only |
| b = beta | 1.33 |
a. What is REA's unlevered beta? Use the market value D/S (which is the same as wD/wS when unlevering).
b. What are REA's new beta and cost of equity if it has the new weight of debt in the table?
c. Calculate the new after-tax cost of debt.
d. What is BEA's WACC with the new weight of debt?
e. What is the total value of the firm?
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Inter Agency Task Force On Financing For Development Inaugural Report 2016 Monitoring Commitments And Actions Addis Ababa Action Agenda
Authors: United Nations Department Of Economic And Social Affairs , United Nations Publications
1st Edition
9211013364,921057916X
