Calculate beta of the common stock after the refinancing

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Reference no: EM131892513

Astromet is financed entirely by common stock and has a beta of 1.80. The firm pays no taxes. The stock has a price-earnings multiple of 13.0 and is priced to offer an expected return of 10.3%. The company decides to repurchase half the common stock and substitute an equal value of debt. Assume that the debt yields a risk-free 4.4%. Calculate the following:

a. The beta of the common stock after the refinancing (Round your answer to 1 decimal place.)

b. The required return and risk premium on the common stock before the refinancing (Enter your answer as a percent rounded to 1 decimal place.)

c. The required return and risk premium on the common stock after the refinancing (Enter your answer as a percent rounded to 1 decimal place.)

d. The required return on the debt (Enter your answer as a whole percent.)

e. The required return on the company (i.e., stock and debt combined) after the refinancing (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

If EBIT remains constant: f. What is the percentage increase in earnings per share after the refinancing? (Do not round intermediate calculations. Enter your answer as a whole percent.)

g-1. What is the new price-earnings multiple? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

g-2. Has anything happened to the stock price?

Reference no: EM131892513

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