The balance sheet of a company consists of assets with a value of £200m, debt with a value of £90m, and equity with a va
Posted: Wed Mar 09, 2022 8:41 am
The balance sheet of a company consists of assets with a value
of £200m, debt with a value of £90m, and equity with a value of
£110m. The risk-free rate is 3%, and the average return on the
market index is 7%. You should assume that Modigliani-Miller's
irrelevance of capital structure holds:
Suppose the firm rebalances its borrowing by issuing £10m more
in debt used to buy back £10m worth of equity. The beta of the debt
remains at 0.2 after the recapitalization. What is the new beta of
the equity?
of £200m, debt with a value of £90m, and equity with a value of
£110m. The risk-free rate is 3%, and the average return on the
market index is 7%. You should assume that Modigliani-Miller's
irrelevance of capital structure holds:
Suppose the firm rebalances its borrowing by issuing £10m more
in debt used to buy back £10m worth of equity. The beta of the debt
remains at 0.2 after the recapitalization. What is the new beta of
the equity?