The Asheville Company has the following balance sheet:
L-T Debt (6%)-$3000
Common Stock ($1 par)- $400
Retained Earnings- $2,600
Total Assets $ 6,000
Tot. Liab. & Equity $6000
No dividend is paid on the common stock. The stock is currently selling for $12 per share and its historical beta is estimated to be 1.2 using daily price data. The current market rate of interest on the debt is 7% and the current debt will mature in 10 years. Asheville has a 40% tax rate. The expected return on the market is 10% and the risk-free rate is 4%.
What is the market value of the debt? What is the market value of the Equity?
Debt: $2,789 Equity: $4,800
What is the WACC for Asheville?
Asheville plans to recapitalize by issuing $1,000 worth of additional ten-year debt paying a coupon rate of interest of 8%, the projected market rate of interest on all of its debt following the financial restructuring. The proceeds of the debt issue will be used to repurchase common stock of the company at a $15.00 tender price, the expected market price of the stock following the repurchase. What will be the new WACC after the recapitalization?
Unlevered Beta is 0.89 New WACC is 8.77%