Considering recapitalization plan

Assignment Help Financial Management

Reference no: EM131928631

Blueline Publishers is considering a recapitalization plan. It is currently 100% equity financed but under the plan it would issue long-term debt with a yield of 9% and use the proceeds to repurchase common stock. The recapitalization would not change the company's total assets, nor would it affect the firm's basic earning power, which is currently 15%. The CFO believes that this recapitalization would reduce the WACC and increase stock price. Which of the following would also be likely to occur if the company goes ahead with the recapitalization plan? a. The company's cost of equity would increase. b. The company's net income would increase. c. The company's earnings per share would decline. d. The company's ROE would decline. e. The company's ROA would increase.

Reference no: EM131928631

Questions Cloud

What is the optimal number of contracts to buy or sell : JetBlue will purchase 5,500,000 gallons of jet fuel in 3 month and will hedge with heating oil futures, which are for 42,000 gallons.

What is bellamee after-tax cost of debt financing : what is Bellamee's after-tax cost of debt financing (in percent) if the tax rate is 50 percent?

What will be exact percentage change in revenues : what will be the exact percentage change in revenues for Ladri next year, relative to this year?

Why should sara make decision based on overall price : Assuming Sara wants the cheapest overall price, which option should she take? Should she take the 0% financing offer for 60 months from the dealer.

Considering recapitalization plan : Blueline Publishers is considering recapitalization plan. Which of following would also be likely to occur if company goes ahead with the recapitalization plan

Compute the internal rate of return : The net present value rule versus the internal rate of return rule. You must choose between the two projects whose cash flows are shown below.

What is the market price of your preferred stock : You own 6% preferred stock ($100 par value) and it has a conversion right of 10 shares for each of the preferred shares submitted for conversion.

Unique ability to hedge against systematic liquidity shocks : Commercial banks have a unique ability to hedge against systematic liquidity shocks

What is the bond ytm : A 6% semiannual coupon bond matures in 4 years. The bond has a face value of $1,000 and a current yield of 6.7277%. What is the bond's price?

User Account

All Pages