What is current beta on mmes common stock

Assignment Help Financial Management

Reference no: EM131550983

Currently, Meyers Manufacturing Enterprises (MME) has a capital structure consisting of 35% debt and 65% equity. MME's debt currently has a 6.6% yield to maturity. The risk-free rate (rRF) is 4.6%, and the market risk premium (rM – rRF) is 5.6%. Using the CAPM, MME estimates that its cost of equity is currently 10.3%. The company has a 40% tax rate.

a. What is MME's current WACC? Round your answer to 2 decimal places. Do not round intermediate calculations.

b. What is the current beta on MME's common stock? Round your answer to 4 decimal places. Do not round intermediate calculations.

c. What would MME's beta be if the company had no debt in its capital structure? (That is, what is MME's unlevered beta, bU?) Round your answer to 4 decimal places. Do not round intermediate calculations.

MME's financial staff is considering changing its capital structure to 45% debt and 55% equity. If the company went ahead with the proposed change, the yield to maturity on the company's bonds would rise to 7.1%. The proposed change will have no effect on the company's tax rate.

d. What would be the company's new cost of equity if it adopted the proposed change in capital structure? Round your answer to 2 decimal places. Do not round intermediate calculations.

e. What would be the company's new WACC if it adopted the proposed change in capital structure? Round your answer to 2 decimal places. Do not round intermediate calculations.

Reference no: EM131550983

Questions Cloud

Dissatisfied with one of the companies in your portfolio : You are a fund manager and are dissatisfied with one of the companies in your portfolio.

What is company target debt-equity ratio : The tax rate is 38 percent. What is the company's target debt-equity ratio?

What is project payback period : A project with an initial outlay of $3,000 results in after tax cash flows of $500 after each of the next 10 years. What is the project's payback period?

Relationship between market-wide risk and market-wide return : The annualized volatility is sqr(252) times the daily volatility. Why? What is the relationship between market-wide risk and market-wide returns?

What is current beta on mmes common stock : What is the current beta on MME's common stock? What would MME's beta be if the company had no debt in its capital structure?

Compare the government bonds to corporate bonds : Compare and contrast (in detail) Government Bonds to Corporate Bonds.

Considering an investment in keller corporation stocks : You are considering an investment in Keller Corporation’s stocks,

Value of three-month european call option on the stock : Calculate the value of a three-month European call option on the stock with an exercise price of $48,

What is the npv of selling the computer program on credit : What is the net present value (NPV) of selling the computer program for cash? What is the NPV of selling the computer program on credit?

User Account

All Pages