question archive Brealey Corporation is currently all equity financed and has a value of $80 million
Brealey Corporation is currently all equity financed and has a value of $80 million
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Brealey Corporation is currently all equity financed and has a value of $80 million. Investors currently require a return of 17.4% on common stock. Brealey has a marginal tax rate of 15%. Brealey plans to issue $20 million of debt with a return of 6.6% and use the proceeds to repurchase common stock.
Question:
1. What will be the value of the firm after the debt issue?
2. Given that the value of the firm after the debt issue will be $83 million, what will be the value of the equity after the debt issue?
3. Given that the value of the equity after the debt issue will be $63 million, what will be the expected return on the stock after the debt issue?
4. Given that the expected return on the stock after the debt issue will be 20.31%, what will be the Weighted Average Cost of Capital after the debt issue?
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