The common stock and debt of Windows Phone Corp. are valued at $66 million and $38 million, respectively. Investors currently require a 14% return on the common stock and an 9% return on the debt. There are no taxes. WACC=12.17

If Windows Phone Corp. issues an additional $15 million of debt and uses this money to retire common stock, what will be the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt, and recall that the WACC under the initial capital structure is 12.17%.  Enter your answer as a percentage. Do not include the percentage sign in your answer. Enter your answer rounded to 2 DECIMAL PLACES. rE=15.46

Suppose you prefer the original capital structure with a 14% return on the common stock and a WACC of 12.17%. If you have $3,500 to invest, how much should you invest in the stock and bonds of the restructured firm (which have returns of 15.46% and 9%, respectively) to obtain the same return as an investment in the stock of the original firm? Enter your answers rounded to 2 DECIMAL PLACES.

Amount into equity =  ?

Amount into debt = ?

Answer rating: 100% (QA)

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