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What is hic current cost of equity

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Hanson Industrial Corporation (HIC) is considering a large-scale recapitalization.  Currently HIC is financed with 25% debt and 75% equity.  They have 10,000 shares outstanding at a price of $45.45 and EBIT is $100,000.  HIC Is considering increasing its level of debt until it is finance with 60% debt and 40% equity.  The beta on its common stock at the current level of debt is 1.5, the risk-free rate is 6%, the market risk premium is 4%, and HIC faces a 40% tax rate.

  1. What is HIC's current cost of equity?
  2. What is HIC's unlevered beta?
  3. What will be the new beta and the new cost of equity is HIC recapitalizes?
  4. If these weights are on a market value basis, and the new cost of debt is 7% (assume all old debt is replaced with the new), what is the new WACC for HIC and what is its new firm value?
  5. Given your results what would be the equilibrium price for HIC's stock after recapitalization?

Reference no: EM133114008

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