Walmart (WMT) is currently with 80% of Equity and 20 of Debt. Currently, market analysts estimate WMT beta to equal to 0.6 assume that in a very near future, WMT managment will decide to recapitalize and finance the company Value with the proportion of 100% Equity and 0% Debt. Today's Treasure Bond Yield (10-year maturity) is 1.5%, Today's pre-tax WMT Cost of Debt (Rd) is 2.2%, FB is to 21% tax rate, Market Risk Premium (MRP) = 5%.  After recapitalization, WMT debt will be considered safer than now (that is, there will be a very high chance that WMT will be able to repay its loans). That means, the pre-tax Cost of Debt will either increase or decrease by 0.3%.

 
A) Whenever market gains or loses 1%, shares of WMT are expected to gain or lose ______% on average.

B) What is the WMT Cost of Equity(Re) today?

C) What is WMT Weighted Avergae Cost of capital today?

D) Provide your best estimate of WMT beta after recapitalization? (show your formulas, etc. AND the final number estimate)

E) What will the WACC of WMT be after recapitalization?

F) assume that the only goal of WMT is to maximize the value of the company's projects for the investors. Would you expect the recapitalization of WMT to be beneficial or detrimental for the investors?

Answer rating: 100% (QA)

SOLUTIONS A Whenever the market gains or loses 1 shares of WMT are expected to gain or lose 06 on average This is calculated using the formula Beta Ma... View the full answer