Find the expected return of the stock

Reference no: EM1348551

Global Pistons (GP) has common stocks with a market value of $200 million and debt with a value of $100 million. Investors expect 15% return on the stock and 6% return on the debt. Assume perfect capital markets.

a) Suppose GP issues $100 million of new stock to buy back the debt. What is the expected return of the stock after this transcation?

b) Suppose instead GP issues $50 million of new debt to repurchases stock.
(1) if the risk of the debt does not change, what is the expected return of the stock after this transaction?
(2) If the risk of the debt increases, would the expected return of the stock be higher or lower tahn in part(i)?

Reference no: EM1348551

Questions Cloud

Determining cost of goods manufactured and sold : The following information pertains to pandey manufacturing company for March 2012. Assume actual overhead equaled applied overhead.

Juvenile competency to stand trial : Compare the similarities and differences between how juveniles and adults are assessed for competency to stand trial. In this area, briefly describe the issues that distinguish juveniles from adults in.

Explain how brand equity and brand personality benefit : Pick a product with high brand equity, and then describe its brand personality and describe how brand equity and brand personality benefit the brand and its company.

Distinguish aming the functional personal income : Illustrate distinguish between the functional distribution and personal distribution of income.

Find the expected return of the stock : Global Pistons has common stocks with a market value of $200 million and debt with a value of $100 million. Investors expect 15 percent return on the stock and 6% return on the debt.

Treatement for schizophrenia : Read a social and behavioral sciences journal article from the last 5 years that addresses treatment for schizophrenia.

Find the traits that effective managers possess : Find the traits that effective managers possess and what is the significance of the development of these traits? Which of these traits are more important when managing conflict?

Characteristics used for biometric user authentication : You have just been promoted to manager of computer security for large enterprise (XYZ Corporation). Your first project as security manager is to estimate principal physical characteristics used for biometric user authentication.

Clinical care providers : In detail, recognize the difference between managerial style and managerial function.

User Account

All Pages