Question

Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 6%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $15.654 million, and it faces a 40% federal-plus-state tax rate. The market risk premium is 6%, and the risk-free rate is 4%. BEA is considering increasing its debt level to a capital structure with 30% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 9%. BEA has a beta of 1.0.

What is BEA's unlevered beta? Use market value D/S (which is the
same as w_{d}/w_{s}) when unlevering. Do not round
intermediate calculations. Round your answer to two decimal
places.

What are BEA's new beta and cost of equity if it has 30% debt?
Do not round intermediate calculations. Round your answers to two
decimal places.

Beta:

Cost of equity: %

What are BEA’s WACC and total value of the firm with 30% debt? Do not round intermediate calculations. Round your answer to two decimal places.

What is the total value of the firm with 30% debt? Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answer to three decimal places.

Answer #1

Beckman Engineering and Associates (BEA) is considering a change
in its capital structure. BEA currently has $20 million in debt
carrying a rate of 8%, and its stock price is $40 per share with 2
million shares outstanding. BEA is a zero growth firm and pays out
all of its earnings as dividends. The firm's EBIT is $13.516
million, and it faces a 30% federal-plus-state tax rate. The market
risk premium is 4%, and the risk-free rate is 5%. BEA...

Beckman Engineering and Associates (BEA) is considering a change
in its capital structure. BEA currently has $20 million in debt
carrying a rate of 8%, and its stock price is $40 per share with 2
million shares outstanding. BEA is a zero growth firm and pays out
all of its earnings as dividends. The firm's EBIT is $13.558
million, and it faces a 30% federal-plus-state tax rate. The market
risk premium is 4%, and the risk-free rate is 6%. BEA...

Beckman Engineering and Associates (BEA) is considering a change
in its capital structure. BEA currently has $20 million in debt
carrying a rate of 8%, and its stock price is $40 per share with 2
million shares outstanding. BEA is a zero growth firm and pays out
all of its earnings as dividends. The firm's EBIT is $13.013
million, and it faces a 35% federal-plus-state tax rate. The market
risk premium is 5%, and the risk-free rate is 6%. BEA...

Beckman Engineering and Associates (BEA) is considering a change
in its capital structure. BEA currently has $20 million in debt
carrying a rate of 7%, and its stock price is $40 per share with 2
million shares outstanding. BEA is a zero growth firm and pays out
all of its earnings as dividends. The firm's EBIT is $15.459
million, and it faces a 35% federal-plus-state tax rate. The market
risk premium is 5%, and the risk-free rate is 6%. BEA...

Beckman Engineering and Associates (BEA) is considering a change
in its capital structure. BEA currently has $20 million in debt
carrying a rate of 7%, and its stock price is $40 per share with 2
million shares outstanding. BEA is a zero growth firm and pays out
all of its earnings as dividends. The firm's EBIT is $14.696
million, and it faces a 35% federal-plus-state tax rate. The market
risk premium is 5%, and the risk-free rate is 5%. BEA...

Beckman Engineering and Associates (BEA) is considering a change
in its capital structure. BEA currently has $20 million in debt
carrying a rate of 6%, and its stock price is $40 per share with 2
million shares outstanding. BEA is a zero-growth firm and pays out
all of its earnings as dividends. The firm's EBIT is $17 million,
and it faces a 25% federal-plus-state tax rate. The market risk
premium is 4%, and the risk-free rate is 7%. BEA is...

Optimal Capital Structure with Hamada
Beckman Engineering and Associates (BEA) is considering a change
in its capital structure. BEA currently has $20 million in debt
carrying a rate of 8%, and its stock price is $40 per share with 2
million shares outstanding. BEA is a zero growth firm and pays out
all of its earnings as dividends. The firm's EBIT is $12.438
million, and it faces a 40% federal-plus-state tax rate. The market
risk premium is 5%, and the...

Optimal Capital Structure with Hamada
Beckman Engineering and Associates (BEA) is considering a change
in its capital structure. BEA currently has $20 million in debt
carrying a rate of 6%, and its stock price is $40 per share with 2
million shares outstanding. BEA is a zero growth firm and pays out
all of its earnings as dividends. The firm's EBIT is $13.257
million, and it faces a 30% federal-plus-state tax rate. The market
risk premium is 6%, and the...

Optimal Capital
Structure with Hamada
Beckman Engineering
and Associates (BEA) is considering a change in its capital
structure. BEA currently has $20 million in debt carrying a rate of
6%, and its stock price is $40 per share with 2 million shares
outstanding. BEA is a zero growth firm and pays out all of its
earnings as dividends. The firm's EBIT is $13.257 million, and it
faces a 30% federal-plus-state tax rate. The market risk premium is
6%, and the...

Optimal Capital Structure with Hamada
Beckman Engineering and Associates (BEA) is considering a change
in its capital structure. BEA currently has $20 million in debt
carrying a rate of 6%, and its stock price is $40 per share with 2
million shares outstanding. BEA is a zero growth firm and pays out
all of its earnings as dividends. The firm's EBIT is $14.959
million, and it faces a 40% federal-plus-state tax rate. The market
risk premium is 5%, and the...

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