User Account

All Pages

Find ajc new wacc and total corporate value

Assignment Help Finance Basics
Reference no: EM132658568

The A. J. Croft Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6 percent. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero-growth company. AJC's current unlevered beta is 0.5, and its tax rate is 40 percent. The firm has 10,000 shares of common stock outstanding selling at a price per share of $60.00.

The firm is considering moving to a capital structure that is comprised of 40 percent debt and 60 percent equity, based on market values. The new funds would be used to replace the old debt and to repurchase stock. It is estimated that the increase in riskiness resulting from the leverage increase would cause the required rate of return on debt to rise to 7 percent. The risk free rate is 6 percent and the market risk premium is 5 percent.

-If this restructuring plan were carried out, what would be AJC's new levered beta and new cost of equity?

-What would be AJC's new WACC and total corporate value?

-What would be its new total market value of debt and total market value of equity respectively?

-What would be its new stock price per share?

-How many shares would AJC repurchase in the recapitalization?

-Should AJC make the capital structure change?

Reference no: EM132658568

Questions Cloud

How much of his loss from BlueSky Partnership is deductible : Assuming that Lee is not a material participant, how much of his loss from BlueSky Partnership is deductible in 2019 and 2020
Focused on moral development and ethical reasoning : This lecture focused on moral development and ethical reasoning.
What was the accountant referring to in his comment : What was the accountant referring to in his comment? What would you suggest Maxine consider as she attempts to maximize her current-year deductible loss
Establish a detailed schedule for claudia : You should use the details found within the lessons to help establish a detailed schedule for Claudia. Do not forget to embrace the reading assignments.
Find ajc new wacc and total corporate value : The A. J. Croft Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying
Ordinary service-provider and client relationship : What are some ways the physician and patient relationship is unlike an ordinary service-provider and client relationship?
Write a letter to Kristin to review the tax consequences : If Kristin makes this investment, her share of the expected profits this year will be $8,000. Write a letter to Kristin to review the tax consequences
What is the plowback ratio : What is the plowback ratio? Enter your answer as a percentage. Do not include the percentage sign in your answer.
Vitamin and mineral supplement : What is the cost of these supplements? What compounds are included that are not essential nutrients? Are the levels of nutrients safe?

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd