TCOs D & E) Abbee Aviation (AV) has 40 million shares
- From Business, Accounting
- Academia
- Rating : 60
- Grade : A+
- Questions : 0
- Solutions : 4595
- Blog : 1
- Earned : $25563.50
TCOs D & E) Abbee Aviation (AV) has 40 million shares of stock outstanding, that trade at $40. The risk-free interest rate is 2% and the market risk premium is 8.9%. This stock has a beta of 2.7. AV also has $400 million in 9% bonds outstanding and the company has a 42% tax rate. Show all calculations for each of your answers to earn full credit.
Part 1: a) Calculate the firm’s market capitalization and then calculate the enterprise value. b) Use the CAPM formula to determine the firm’s cost of equity, and c) Utilize this information to calculate AV’s weighted average cost of capital.
Part 2: a) Assume that Abbee Aviation issues $200 million in bonds to buy back $200 million in common stock in order to recapitalize the firm. What is AV’s new WACC? b) Finally, discuss why there is a change in WACC and explain the impact of the components of capital structure on a company’s cost of capital. (Points : 50)
[Solved] TCOs D & E) Abbee Aviation (AV) has 40 million shares
- This solution is not purchased yet.
- Submitted On 28 Jun, 2015 09:47:27
- Academia
- Rating : 60
- Grade : A+
- Questions : 0
- Solutions : 4595
- Blog : 1
- Earned : $25563.50
TCOs D & E) Abbee Aviation (AV) has 40 million shares
The benefits of buying study notes from CourseMerits
Assurance Of Timely Delivery
We value your patience, and to ensure you always receive your homework help within the promised time, our dedicated team of tutors begins their work as soon as the request arrives.
Best Price In The Market
All the services that are available on our page cost only a nominal amount of money. In fact, the prices are lower than the industry standards. You can always expect value for money from us.
