The stock of Minnow Plc is currently trading at 2.50 per share and it has 100...

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The stock of Minnow Plc is currently trading at £2.50 per share and it has 100 million shares outstanding. It also has £150 million of debt and the regression beta of its stock is 1.2. The company is planning to increase its Debt/Equity ratio to 4.0. If the tax rate is 25%, what will be the new equity beta of Minnow Plc after the recapitalisation? (3 marks) b. What assumption have you made about debt beta and hence the riskiness of the debt of Minnow Plc? (2 marks) Masha plc is a publicly traded company in stable growth, expecting to grow at 4% a year in perpetuity. In the most recent year, it reported a net income of £10 million and its book value of equity was £100 million. Its cost of equity is 12%. Estimate the intrinsic' P/B ratio for the company. (2 marks) Assuming its return on equity remains unchanged, what will be the impact of increased reinvestment on the growth rate and the P/B ratio of Mash plc? (3 marks) The stock of Minnow Plc is currently trading at £2.50 per share and it has 100 million shares outstanding. It also has £150 million of debt and the regression beta of its stock is 1.2. The company is planning to increase its Debt/Equity ratio to 4.0. If the tax rate is 25%, what will be the new equity beta of Minnow Plc after the recapitalisation? (3 marks) b. What assumption have you made about debt beta and hence the riskiness of the debt of Minnow Plc? (2 marks) Masha plc is a publicly traded company in stable growth, expecting to grow at 4% a year in perpetuity. In the most recent year, it reported a net income of £10 million and its book value of equity was £100 million. Its cost of equity is 12%. Estimate the intrinsic' P/B ratio for the company. (2 marks) Assuming its return on equity remains unchanged, what will be the impact of increased reinvestment on the growth rate and the P/B ratio of Mash plc? (3 marks)

Answer rating: 100% (QA)

SOLUTION a To calculate the new equity beta of Minnow Plc after the recapitalisation we can use the following formula Unlevered Beta Levered Beta 1 1 ... View the full answer