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Calculate the items after refinancing

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Reference no: EM133001222

Spam Corp is finance entirely by common stock and has a beta of 1.0. the firm is expected to generate a level perpetual stream of earnings and dividends. The stock has a price earnings ratio of 8 and a cost of equity of 12.5%. the company`s stock is selling for $50. Now the firm decides to repurchase half of its share and substitute an equal value of debt. The debt risk-free, with a 5% interest rate. The company is exempt from corporate income taxes. Assuming MM are correct, calculate the following items after refinancing (1) Return on equity (ii) the stocks beta

Reference no: EM133001222

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