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# Capital Structure Decisions

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1. A company has a beta of 1.15. The tax rate is 40% and the company is financed with 45% debt. What is the company's unlevered beta? (The answer is 1.0, but how do you get it?)

2. A company's value of operations is equal to \$500 million after recapitalization (the firm has no debt before the recap). It raised \$200 million in new debt and used this to buy back stock. The company had no short-term investments before or after the recap. After the recap, Wd = 0.4. What is S (the value of the equity after the recap)? (The answer is \$300 million, but how do you get it?)

3. A company's value of operations is equal to \$900 million after a recapitalization (the firm had no debt before the recap). The company raised \$300 million in new debt and used this to buy back stock. The company had no short-term investments before or after the recap. After the recap, Wd = 1/3. The firm had \$30 million shares before the recap. What is P (the stock price after the recap)? (The answer is \$30, but how do you get it?)

4. A company raised \$150 million in new debt and used this to buy back stock. After the recap, the company's stock price is \$7.5. If the company had 60 million shares of stock before the recap, how many shares does it have after the recap? (The answer is 40 million, but how do you get it?)