What are BEA's new beta and cost ofequity if it has 40% debt? Do notround intermediate calculations.Round your answers to two decimalplaces.Beta:Cost of equity:What is BEA's WACC with 40% debt?Do not round intermediatecalculations. Round your answer totwo decimal places.%What is the total value of the firmwith 40% debt? Do not round$%intermediate calculations. Enter youranswer in millions. For example, ananswer of $1.234 million should beentered as 1.234, not 1,234,000.Round your answer to three decimalplaces.million Optimal Capital Structure withHamadaBeckman Engineering and Associates(BEA) is considering a change in itscapital structure. BEA currently has $20million in debt carrying a rate of 8%,and its stock price is $40 per share with2 million shares outstanding. BEA is azero-growth firm and pays out all of itsearnings as dividends. The firm's EBIT is$18 million, and it faces a 25% federal-plus-state tax rate. The market riskpremium is 4%, and the risk-free rate is6%. BEA is considering increasing itsdebt level to a capital structure with40% debt, based on market values, andrepurchasing shares with the extramoney that it borrows. BEA will have toretire the old debt in order to issue newdebt, and the rate on the new debt willbe 10%. BEA has a beta of 1.2.a. What is BEA's unlevered beta? Usemarket value D/S (which is the sameas wd/ws) when unlevering. Do notround intermediate calculations.Round your answer to two decimalplaces.

For the given capital structure, the firm's beta is known. We have to find the beta, cost of equity,…

What are BEA's new beta and cost of equity if it has 40% debt? Do not round intermediate calculations. Round your answers to two decimal places. Beta: Cost of equity: What is BEA's WACC with 40% debt? Do not round intermediate calculations. Round your answer to two decimal places. $ tA % What is the total value of the firm with 40% debt? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answer to three decimal places. % million

What are BEA's new beta and cost of equity if it has 40% debt? Do not round intermediate calculations. Round your answers to two decimal places. Beta: Cost of equity: What is BEA's WACC with 40% debt? Do not round intermediate calculations. Round your answer to two decimal places. $ tA % What is the total value of the firm with 40% debt? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answer to three decimal places. % million

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter16: Capital Structure Decisions

Section: Chapter Questions

Problem 10P: Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a...

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Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 8%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero-growth firm and pays out all of its earnings as dividends. The firm’s EBIT is $14,933 million, and it faces a 40% federal-plus-state tax rate. The market risk premium is 4%, and the risk-free rate is 6%. BEA is considering increasing its debt level to a capital structure with 40% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 9%. BEA has a beta of 1.0. What is BEA’s unlevered beta? Use market value D/S (which is the same as wd/ws when unlevering. What are BEA’s new beta and cost of equity if it has 40% debt? What are BEA’s WACC and total value of the firm with 40% debt?
Hasting Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.4 (given its target capital structure). Vandell has $10.82 million in debt that trades at par and pays an 8% interest rate. Vandell’s free cash flow (FCFJ is $2 million per year and is expected to grow at a constant rate of 5% a year. Vandell pays a 40% combined federal and state tax rate. The risk-free rate of interest is 5%, and the market risk premium is 6%. Hasting’s First step is to estimate the current intrinsic value of Vandell. What are Vandell’s cost of equity and weighted average cost of capital? What is Vandell’s intrinsic value of operations? [Hint: Use the free cash flow corporate valuation model from Chapter 8.) What is the current intrinsic value of Vandell’s stock?
Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 8%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $14.442 million, and it faces a 40% federal-plus-state tax rate. The market risk premium is 4%, and the risk-free rate is 6%. BEA is considering increasing its debt level to a capital structure with 35% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 8%. BEA has a beta of 1.0. a. What is BEA's unlevered beta? Use market value D/S (which is the same as wa/w,) when unievering. Round your answer to two decimal places. 0.870 b. What are BEA's new beta and cost of equity if it has 35% debt? Do not…
Optimal Capital Structure with HamadaBeckman Engineering and Associates (BEA) is considering a change in itscapital structure. BEA currently has $20 million in debt carrying a rate of8%, and its stock price is $40 per share with 2 million shares outstanding.BEA is a zero-growth firm and pays out all of its earnings as dividends.The firm’s EBIT is $14.933 million, and it faces a 40% federal-plus-statetax rate. The market risk premium is 4%, and the risk-free rate is 6%. BEAis considering increasing its debt level to a capital structure with 40% debt,based on market values, and repurchasing shares with the extra money thatit borrows. BEA will have to retire the old debt in order to issue new debt,and the rate on the new debt will be 9%. BEA has a beta of 1.0.a. What is BEA’s unlevered beta? Use market value D/S (which is the sameas wd/ws) when unlevering.b. What are BEA’s new beta and cost of equity if it has 40% debt?c. What are BEA’s WACC and total value of the firm with 40% debt?
Lancaster Engineering Inc. (LEI) has the following capital structure, which it considers to be optimal:Debt 25% Preferred stock 15% Common equity 60% Total 100%LEI is expected to pay a dividend of $3.24 per share next year, its stock currently sells for $54 per share, and investors expect dividends to grow at a constant rate of 9 percent in the future. LEI’s tax rate is 40 percent.LEI can obtain new capital in the following ways:• New preferred stock with a dividend of $9.5 can be sold to the public at a price of $95 per share.• Debt can be sold at an interest rate of 12 percent.a. Determine the cost of each capital component.b. Calculate the WACC.3|Page4 c. LEI has the following investment opportunities that are average-risk projects for the firm:Project ABCDECost at t = 0$10,000 20,000 10,000 20,000 10,000Rate of Return16.4% 15.0% 13.2% 12.0% 11.5%Which projects should LEI accept? Why?
Lancaster Engineering Inc. (LEI) has the following capital structure, which it considers to be optimal: Debt 25% Preferred stock 15% Common equity 60% Total 100% LEI is expected to pay a dividend of $3.24 per share next year, its stock currently sells for $54 per share, and investors expect dividends to grow at a constant rate of 9 percent in the future. LEI’s tax rate is 40 percent. LEI can obtain new capital in the following ways: • New preferred stock with a dividend of $9.5 can be sold to the public at a price of $95 per share. • Debt can be sold at an interest rate of 12 percent. Calculate the WACC.
Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 6%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $13.863 million, and it faces a 30% federal-plus-state tax rate. The market risk premium is 4%, and the risk-free rate is 7%. BEA is considering increasing its debt level to a capital structure with 50% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 10%. BEA has a beta of 0.8 What are BEA’s WACC and total value of the firm with 50% debt? Do not round intermediate calculations. Round your answer to two decimal places. % What is the total value of the firm with 50% debt? Enter your answers in millions. For example, an answer…
Lancaster Engineering Inc. (LEI) has the following capital structure, which it considers to be optimal:Debt 25% Preferred stock 15% Common equity 60% Total 100%LEI is expected to pay a dividend of $3.24 per share next year, its stock currently sells for $54 per share, and investors expect dividends to grow at a constant rate of 9 percent in the future. LEI’s tax rate is 40 percent.LEI can obtain new capital in the following ways:• New preferred stock with a dividend of $9.5 can be sold to the public at a price of $95 per share.• Debt can be sold at an interest rate of 12 percent.a. Determine the cost of each capital component.b. Calculate the WACC.
Lancaster Engineering Inc. (LEI) has the following capital structure, which it considers to be optimal: Debt 25% Preferred stock 15% Common equity 60% Total 100% LEI is expected to pay a dividend of $3.24 per share next year, its stock currently sells for $54 per share, and investors expect dividends to grow at a constant rate of 9 percent in the future. LEI’s tax rate is 40 percent. LEI can obtain new capital in the following ways: New preferred stock with a dividend of $9.5 can be sold to the public at a price of $95 per share. Debt can be sold at an interest rate of 12 percent. Determine the cost of each capital component. Calculate the WACC. LEI has the following investment opportunities that are average-risk projects for the firm: Project Cost at t = 0 Rate of Return A $10,000 16.4% B 20,000 15.0% C 10,000 13.2% D 20,000 12.0% E 10,000 11.5% Which projects should LEI accept? Why?
Lancaster Engineering Inc. (LEI) has the following capital structure, which it considers to be optimal: Debt 25% Preferred stock 15% Common equity 60% Total 100% LEI is expected to pay a dividend of $3.24 per share next year, its stock currently sells for $54 per share, and investors expect dividends to grow at a constant rate of 9 percent in the future. LEI’s tax rate is 40 percent. LEI can obtain new capital in the following ways: • New preferred stock with a dividend of $9.5 can be sold to the public at a price of $95 per share. • Debt can be sold at an interest rate of 12 percent. a. Determine the cost of each capital component