Question: Nodebt, Inc., has zero debt (wd 5 0). It is considering restructuring to increase its percentage of debt to wd 5 40%. Its beta is

Nodebt, Inc., has zero debt (wd 5 0). It is considering restructuring to increase its percentage of debt to wd 5 40%. Its beta is 0.8, the riskfree rate is 6%, the market risk premium is 7%, and if it restructures, the required return on its debt will be 9%. Nodebts tax rate is 25%. a. Using the Hamada equation, calculate Nodebts required return on equity after the recapitalization. b. Using the MM model with corporate taxes (Equation 17-16) calculate Nodebts required return on equity. c. Using the APV model, calculate Nodebts required return on equity. d. Explain why these three answers are different. Brigham, Eugene F.; Daves, Phillip R.. Intermediate Financial Management (p. 740). South-Western College Publishing. Kindle Edition.

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