Recapitalization, Debt-to-Equity, and ROE An institutional investor believes that the company he has invested in should...

 

Transcribed Image Text:

Recapitalization, Debt-to-Equity, and ROE An institutional investor believes that the company he has invested in should increase its leverage to improve the return on its stock. Currently, the investor earns a return of 15% on a $7.2 million investment in the stock. a. What is his debt-to-equity ratio if he borrows $3,500,000 at a 2.1% interest rate and invests it all in the stock? b. What is the return on the portfolio of stock and debt? a. The debt-to-equity ratio after the recapitalization is b. The return on the portfolio of stock and debt is%. (Round to two decimal places.) (Round to two decimal places.) Recapitalization, Debt-to-Equity, and ROE An institutional investor believes that the company he has invested in should increase its leverage to improve the return on its stock. Currently, the investor earns a return of 15% on a $7.2 million investment in the stock. a. What is his debt-to-equity ratio if he borrows $3,500,000 at a 2.1% interest rate and invests it all in the stock? b. What is the return on the portfolio of stock and debt? a. The debt-to-equity ratio after the recapitalization is b. The return on the portfolio of stock and debt is%. (Round to two decimal places.) (Round to two decimal places.)

Answer rating: 100% (QA)

Part a DebttoEquity Ratio Calculation The debttoequity ratio is calculate... View the full answer