Question

Samsung currently has 5 million shares outstanding, trading at $24.97 and no debt. The stock's beta is 1.2. T-Bills currently yield 0.5% and the expected return on the S&P 500 is 5%.

The company is thinking of issuing 81 million of debt to repurchase its own stock. The yield to maturity on similar bonds issued by other companies is 5%. The average tax rate is 34%.

What is the company's current WACC? Based on what happens to the value of the company after the restructuring, what must be the new market value of its equity (in $ million)?

What is the new rate of return equity?

What is the new WACC?

Answer #1

Samsung currently has 5 million shares outstanding, trading at
$24.97 and no debt. The stock's beta is 1.2. T-Bills currently
yield 0.5% and the expected return on the S&P 500 is 5%.
The company is thinking of issuing 81 million of debt to
repurchase its own stock. The yield to maturity on similar bonds
issued by other companies is 5%. The average tax rate is 34%. Use
CAPM
What is the company's current WACC? Based on what happens to the...

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