Capital structure affect the market value of the firm

Assignment Help Financial Management

Reference no: EM132063466

Fan Plc is a publicly traded firm. The market value of its equity is £70,000,000 and its debt £30,000,000. The yield to maturity of the debt is 5%, the shareholders require a 20% return, and the company pays 30% corporate tax. They have recently decided to repurchase £10,000,000 worth of equity, and finance the repurchase through the issuance of new debt.

a) Will this change in capital structure affect the market value of the firm? Discuss.

b) How will the return on equity be affected by this change? What is the new return on equity of the company?

c) A close competitor of Fan Plc has a stock beta of 1.54 when the risk-free rate of return is 4% and the market portfolio offers an expected return of 13%. In addition to equity, the firm finances 40% of its assets with debt that has a yield to maturity of 8%. The firm is in the 30% marginal tax bracket. What is this firm’s weighted- average cost of capital?

Reference no: EM132063466

Questions Cloud

Low blood glucose stimulates the release of acth : Low blood glucose stimulates the release of ACTH which in turn stimulates the release of which of the following hormones from the adrenal cortex?

Discuss the music of the film : Discuss the music of the film (orchestral, electronic, pop songs). Highlight and discuss particular scenes in which you think the music played a significant.

The difference between the terms trafficking and smuggling : Define the difference between the terms trafficking and smuggling. Discuss the difference between these terms as they relate to human trafficking investigations

Chemical structures that are observed in dna : How to illustrate the Watson-Crick base pairs with chemical structures that are observed in DNA double helix?

Capital structure affect the market value of the firm : Will this change in capital structure affect the market value of the firm? Discuss. What is the new return on equity of the company?

What are the immunological tools : What are the immunological tools that can be employed to detect proteins with high specificity and sensitivity?

Compare the relationship between organized crime group : Successful completion of this assignment will demonstrate that you understand how such groups might affect elected officials.

How to read literature like a professor : Write your responses for each story by using the chapters provided from "How to read literature like a professor". Each response must address both chapters.

Mixture of proteins based on their physical properties : How to separate a mixture of proteins based on their physical properties that could employ gel support, and centrifugation, independently?

User Account

All Pages