1.       Frisky, Inc is financed entirely by common stock which is priced according to a 15% expected return. If the company re-purchases 25% of the common stock and substitutes an equal value of debt, yielding 6%, what is the expected return on the common stock after the refinancing?

2.       JB Manufacturing is currently an all-equity firm. The equity of firm is worth $2 million. The cost of that equity is 18%. JB pays no taxes. JB plans to issue $400,000 in debt and use the proceeds to repurchase equity. The cost of debt is 10%.     

(a) After the repurchase the stock, what will the overall cost of capital be?    

(b)After the repurchase, what will the cost of equity be?

Answer rating: 100% (QA)

Solution Answer 1 I 10006 060 new EPS 6060075 720share Answer 2 After th... View the full answer