Assume that the Modigliani-Miller assumptions hold and we have no taxes. Petro Inc. has no debt;...

 

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Assume that the Modigliani-Miller assumptions hold and we have no taxes. Petro Inc. has no debt; its unlevered equity consists of 100,000 shares trading at $65 each. The unlevered equity has a beta of 1.2. The risk-free rate is 3%, and the expected return on the market portfolio is 7%. Petro decides to repurchase 40,000 of its shares and borrows money at an interest rate of 3% to do so. The debt is perpetual. What is Petro's stock price following the leveraged recapitalization? Assume that the Modigliani-Miller assumptions hold and we have no taxes. Petro Inc. has no debt; its unlevered equity consists of 100,000 shares trading at $65 each. The unlevered equity has a beta of 1.2. The risk-free rate is 3%, and the expected return on the market portfolio is 7%. Petro decides to repurchase 40,000 of its shares and borrows money at an interest rate of 3% to do so. The debt is perpetual. What is Petro's stock price following the leveraged recapitalization?

Answer rating: 100% (QA)

Given Unlevered Equity Shares 100000 Unlevered Equity Share Price 65 Unlevered Equity Beta 12 RiskFr... View the full answer