Macbeth Spot Removers is entirely equity financed. Use the following information. ...
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Accounting
Macbeth Spot Removers is entirely equity financed. Use the following information.
| Data | ||||
| Number of shares | 1,300 | |||
| Price per share | $ | 16 | ||
| Market value of shares | $ | 20,800 | ||
| Expected operating income | $ | 3,120 | ||
| Return on assets | 15 | % | ||
Macbeth now decides to issue $10,400 of debt and to use the proceeds to repurchase stock. Suppose that Ms. Macbeth's investment bankers have informed her that since the new issue of debt is risky, debtholders will demand a return of 12.2%, which is 2.8% above the risk-free interest rate. a. What are rA and rE after the debt issue? (Enter your answers as a percent rounded to 2 decimal places. b. Suppose that the beta of the unlevered stock was 0.60. What will A, E, and D be after the change to the capital structure? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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