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With workings please 3.Donald Donuts has O.5 million shares outstanding selling for $30 per share and $15 million of 8% perpetual bonds selling at par.
With workings please
3.Donald Donuts has O.5 million shares outstanding selling for $30 per share and $15 million of 8% perpetual bonds selling at par. The company's EBIT is $8.5 million, and its tax rate is 20%. Donald Donuts is considering changing its capital structure by increasing debt to 70% ofmarket value. The proposal calls for calling the old bonds and issuing new ones with a 6% coupon rte. The company will repurchase stock at the new equilibrium price to complete the capital structure. Donald Donut is a zero-growth firm. It's current cost of equity is 12%. The market risk premium is 5% and the risk-free rate is 4%. i) What is Donald Donut's unlevered beta? What is Donald Donut's new beta? i) iii) What is the firm's WACC after restructuring? iv) How many shares remain after recapitalization? ) What is the firm's corporate value after restructuringStep by Step Solution
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