one corp. is financed entirely by common stock and has beta of 1. the firm is expected to generate a level, perpetual stream of earnings and…

one corp. is financed entirely by common stock and has beta of 1.0. the firm is expected to generate a level, perpetual stream of earnings and dividends. the stock has a price earning ratio of 8 and a cost of equity of 12.5%. the company’s stock is selling for $50. now the firm decides to repurchase half of its share and substitute an equal value of debt. the debt is risk free, with a 5%.the company is exempt from corporate income taxes. assuming Modigliani and Miller are correct, calculate the following items after refinancing: the cost of equity, the overall cost of capital (WACC), the price-earning ratio, the stock price, the stock’s beta

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