Yerba Industries is an all-equity firm whose stock has a beta of 0.60 and an...
60.1K
Verified Solution
Link Copied!
Question
Accounting
Yerba Industries is an all-equity firm whose stock has a beta of 0.60 and an expected return of 10.5%. Suppose it issues new risk-free debt with a 6% yield and repurchase 45% of its stock. Assume perfect capital markets. a. What is the beta of Yerba stock after this transaction? b. What is the expected return of Yerba stock after this transaction? Suppose that prior to this transaction, Yerba expected earnings per share this coming year of $1.50, with a forward P/E ratio (that is, the share price divided by the expected earnings for the coming year) of 10. c. What is Yerba's expected earnings per share after this transaction? Does this change benefit the shareholder? Explain. d. What is Yerba's forward P/E ratio after this transaction? Is this change in the P/E ratio reasonable? Explain. a. What is the beta of Yerba stock after this transaction? The beta of Yerba stock after this transaction is (Round to two decimal places.)
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
