Mercer Corp. is a equity firm with 10 million shares outstanding and $140 million worth of debt outstanding. Its current share price is $76. Mercer's equity cost of capital is 8.5%. Mercer has just announced that it will issue $361 million worth of debt. It will use the proceeds from this debt to pay off its existing debt, and use the remaining $221 million to pay an immediate dividend. Assume perfect capital markets. a. Estimate Mercer's share price just after the recapitalization is announced, but before the transaction occurs. b. Estimate Mercer's share price at the conclusion of the transaction. (Hint: use the market value balance sheet.) c. Suppose Mercer's existing debt was risk-free with a 4.42% expected return, and its new debt is risky with a 4.85%expected return. Estimate Mercer's equity cost of capital after the transaction.

Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at rd = 11%, and its common stock currently pays a $2.50 dividend per share (D0 = $2.50). The stock's price is currently $34.75, its dividend is expected to grow at a constant rate of 8% per year, its tax rate is 25%, and its WACC is 13.35%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places.

Crow Academy leadership wants to know its WACC given its current capital structure. The capital structure data is as follows. Equity: 2,843,200 shares outstanding, price $18.59, stock beta 0.96. Preferred stock: 675,000 shares outstanding, price $21.74, fixed dividend $0.75. Debt: 242,000 zero annual coupon bonds issued, price is 38% of par, 15 years to maturity. If the current market return is 14.28%, the risk-free rate is 3.18%, and the tax rate is 21%, what is the company's weighted average cost of capital (WACC)?

Kennedy Limited is an all-equity publicly listed firm with 600,000 shares currently on issue trading at $20 per share and is expected to generate $1,800,000 in EBIT p.a. in perpetuity. They are considering immediately repurchasing one third their equity at the current market price and replacing this with debt with an interest cost of 4% per annum. Assume that Kennedy Limited operate in a perfect capital market with no taxes, information costs, transaction costs etc. a)                 Demonstrate the impact of the change in capital structure on the (i) Net Income, (ii) ROE and (iii) ROA for Kennedy Limited. b)                 For what value of EBIT will ROE be unaffected by Kennedy Ltd’s decision to repurchase shares?

You have the following information about Burgundy Basins, a sink manufacturer.           Equity shares outstanding   20 million Stock price per share $ 42   Yield to maturity on debt   6.5 % Book value of interest-bearing debt $ 365 million Coupon interest rate on debt   4.7 % Market value of debt $ 260 million Book value of equity $ 440 million Cost of equity capital   12.4 % Tax rate   35 %     Burgundy is contemplating what for the company is an average-risk investment costing $44 million and promising an annual ATCF of $5.2 million in perpetuity.   a. What is the internal rate of return on the investment? (Round your answer to 2 decimal places.)       b. What is Burgundy's weighted-average cost of capital? (Round your answer to 2 decimal places.)