Business, 26.12.2019 23:31 kfhayworth4480

Leverage and the cost of capital spam corp. is financed entirely by common stock and has a beta of 1.0. the firm is expected to generate a level, perpetual stream of earnings and dividends. the stock has a price–earnings ratio of 8 and a cost of equity of 12.5%. the company’s stock is selling for $50. now the firm decides to repurchase half of its shares and substitute an equal value of debt. the debt is risk-free, with a 5% interest rate. the company is exempt from corporate income taxes. assuming mm are correct, calculate the following items after the refinancing: a. cost of equity
b. overall cost of capital (wacc)
c. price-earnings ratio
d. stock price
e. stock's beta

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Leverage and the cost of capital spam corp. is financed entirely by common stock and has a beta of 1...