The CBA Corporation is considering a change in its capital structure. They currently have $10 million...

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The CBA Corporation is considering a change in its capitalstructure. They currently have $10 million (market value) in debtat an interest rate of 5.6%. Their stock price is $35 per sharewith 1,000,000 shares outstanding. EBIT is currently $6.15 millionand is expected to remain at that level into the foreseeablefuture. The risk-free rate is currently 3.2% and the market riskpremium is 5.8%. CBA has a beta of 1.1. They are in the 40%combined federal and state tax bracket. CBA is consideringincreasing its debt ratio to 50% based on market values. They willrepurchase existing shares of stock with the money that theyborrow. If CBA borrows the additional money, the rate of intereston all debt will increase to 7%. What is CBA’s unlevered beta usingmarket value D/S? What will be CBA’s new beta and cost of commonstock, rs,under the proposed 50% debt ratio? What are CBA’s WACC,total value of the firm, and price per share under the new capitalstructure? What will be the change in CBA’s EPS due to the proposedrestructuring?

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The CBA Corporation is considering a change in its capitalstructure. They currently have $10 million (market value) in debtat an interest rate of 5.6%. Their stock price is $35 per sharewith 1,000,000 shares outstanding. EBIT is currently $6.15 millionand is expected to remain at that level into the foreseeablefuture. The risk-free rate is currently 3.2% and the market riskpremium is 5.8%. CBA has a beta of 1.1. They are in the 40%combined federal and state tax bracket. CBA is consideringincreasing its debt ratio to 50% based on market values. They willrepurchase existing shares of stock with the money that theyborrow. If CBA borrows the additional money, the rate of intereston all debt will increase to 7%. What is CBA’s unlevered beta usingmarket value D/S? What will be CBA’s new beta and cost of commonstock, rs,under the proposed 50% debt ratio? What are CBA’s WACC,total value of the firm, and price per share under the new capitalstructure? What will be the change in CBA’s EPS due to the proposedrestructuring?