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Calculate the cost of equity after the refinancing

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Reference no: EM133109917

Spam Corp. is financed entirely by common stock and has a beta of .95. The firm is expected to generate a level, perpetual stream of earnings and dividends. The stock has a price-earnings ratio of 7.40 and a cost of equity of 13.51%. The company's stock is selling for $62. Now the firm decides to repurchase half of its shares and substitute an equal value of debt. The debt is risk-free, with an interest rate of 5.5%. The company is exempt from corporate income taxes. Assume MM is correct

a. Calculate the cost of equity after the refinancing. (Enter your answer as a percent rounded to 2 decimal places.)

b. Calculate the overall cost of capital (WACC) after the refinancing. (Enter your answer as a percent rounded to 2 decimal places.)

c. Calculate the price-earnings ratio after the refinancing. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. Calculate the stock price after the refinancing.

e. Calculate the stock's beta after the refinancing. with explanation

Reference no: EM133109917

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