Determine the beta of the common stock

Reference no: EM1373151

Question: J Hennessy Corporation is entirely financed through common stock and has a beta of 1.2. The stock has a value earnings multiple of ten and is priced to offer a 10% expected rate of return. The company decides to repurchase half of common stock and substitute an equal value of debt. Suppose that the debt yields a risk-free 5%.

a. Determine the beta of the common stock after the refinancing?
b. Determine the beta of the debt?
c. Determine the beta of the entire company (stock plus debt) after the refinancing?
d. Determine the required return on the common stock after the restructuring?

Reference no: EM1373151

Questions Cloud

How overall nature of demand affects planning and control : Analyses and discuss how the overall nature of demand affects planning and control - How has this changed in terms of the type of demand UOP may encounter for an online course and how might the university address such demand?

Differentiate systematic and non-systematic risk : Suppose that the risk free rate of interest is 3 percent and the expected rate of return on the market is 9 percent. A share of stock is selling for $55 at the beginning of the year.

Determine the arithmetic mean return : Downup corporation has the following return history, for the 1st six years, the stock went down 10 percent each year, then in the next 6-years the stock went up 15 percent each year

Find required return on the company stock : A corporation has a beta of 1.3. The risk free interest rate today is 8 percent and the return on a market portfolio of stocks is 14 percent.

Determine the beta of the common stock : J Hennessy Corporation is entirely financed through common stock and has a beta of 1.2. The stock has a value earnings multiple of ten and is priced to offer a 10% expected rate of return.

Us retailer case study and discuss the issues : What are the main issues facing the organization in the case study, or issues with your chosen retailer and what are the options available to the organization

Determine the expected rate of return : Phoenix Corporation common stock is at present selling for $20 per share. Security analysts at Smith Blarney have assigned following probability distribution to the value of Phoenix stock one year from now;

Concept of marginal cost of capital and wacc : After seeing at the project and talking with few people that have been around the management for many years, you recognize that 10 percent cost of capital is not reflective of the firm's current cost of capital.

Computations of cash flow : If, at the end of project life, a piece of machine having a book value of $4,000 is expected to bring $3,000 upon resale, and income tax rate is 40 percent,

User Account

All Pages