What is the current beta on mmes common stock

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Reference no: EM133616968

Problem

Currently, Meyers Manufacturing Enterprises (MME) has a capital structure consisting of 35% debt and 65% equity. MME's debt currently has a 7% yield to maturity. The risk-free rate (rRF) is 5%, and the market risk premium (rM - rRF) is 6%. Using the CAPM, MME estimates that its cost of equity is currently 11.3%. The company has a 40% tax rate.

I. What is MME's current WACC?

II. What is the current beta on MME's common stock?

III. 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?)

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 7.5%. The proposed change will have no effect on the company's tax rate.

IV. What would be the company's new cost of equity if it adopted the proposed change in capital structure?

V. What would be the company's new WACC if it adopted the proposed change in capital structure?

Reference no: EM133616968

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