What are beas wacc and total value of the firm with

Reference no: EM133557742

1. Lee Manufacturing's value of operations is equal to $900 million after a recapitalization (The firm had no debt before the recap.) Lee raised $300 million in new debt and used this to buy back stock. Lee had no short-term investments before or after the recap. After the recap, wd = 1/3. The firm had 28 million shares before the recap. What is P (the stock price after the recap)? Do not round intermediate calculationos. Round your answer to the nearest cent.

2. Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 7%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $12.321 million, and it faces a 40% federal-plus-state tax rate. The market risk premium is 4%, and the risk-free rate is 6%. BEA is considering increasing its debt level to a capital structure with 30% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 7%. BEA has a beta of 0.8.

a. What is BEA's unlevered beta? Use market value D/S (which is the same as wd/ws) when unlevering. Do not round intermediate calculations. Round your answer to two decimal places.

b. What are BEA's new beta and cost of equity if it has 30% debt? Do not round intermediate calculations. Round your answers to two decimal places.
Beta:_____

c. What are BEA's WACC and total value of the firm with 30% debt? Do not round intermediate calculations. Round your answer to two decimal places.

d. What is the total value of the firm with 30% debt? Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answer to three decimal places.

Reference no: EM133557742

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