Giovanna Milanesi
New member
1) If a firm is unlevered and has a cost of equity capital 9%, what would the cost of equity be if the firms became levered at a debt-equity ratio of 5? The expected cost of debt is 7%
2)Learn and Earn Company is financed entirely by common stock that is priced to offer a 20% expected rate of return. The stock price is $60 and the earnings per share are $12. If the company repurchases 50% of the stock and substitutes an equal value of debt yielding i=0.06, what is the expected earnings per share value after refinancing?
3)Analysis of past monthly movements in Wal-Mart's stock price has produced the following estimates:
$\alpha$=-0.0066 and $\beta$=1.85.
If the market index subsequently rises by 5% one month and Wal-Mart's stock price rises by 3%, what is the expected change in Wal-Mart's stock price in percent? 1%
If the market index subsequently rises by 5% one month and Wal-Mart's stock price rises by 3%, what is the abnormal change in Wal-Mart's stock price in percent? 2%
[Hint: Make sure to give your answer in percent!]
2)Learn and Earn Company is financed entirely by common stock that is priced to offer a 20% expected rate of return. The stock price is $60 and the earnings per share are $12. If the company repurchases 50% of the stock and substitutes an equal value of debt yielding i=0.06, what is the expected earnings per share value after refinancing?
3)Analysis of past monthly movements in Wal-Mart's stock price has produced the following estimates:
$\alpha$=-0.0066 and $\beta$=1.85.
If the market index subsequently rises by 5% one month and Wal-Mart's stock price rises by 3%, what is the expected change in Wal-Mart's stock price in percent? 1%
If the market index subsequently rises by 5% one month and Wal-Mart's stock price rises by 3%, what is the abnormal change in Wal-Mart's stock price in percent? 2%
[Hint: Make sure to give your answer in percent!]