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Rayburn Manufacturing Inc- Repurchase of Stock

Rayburn Manufacturing Inc

Market Value of Equity: \$2,000,000.00
Cost of unlevered equity: 18.00%
Cost of debt: 10.00%
Planned issuance of debt: \$400,000.00

A - After Rayburn repurchases the stock, what will the firm's WACC be?
B - After the repurchase, what will the cost of equity be? Explain.

C - Use your answer to (b) to compute Rayburn's WACC after the repurchase. Is this answer consistant with (a)?

Solution Preview

Market Value of Equity: \$2,000,000.00
Cost of unlevered equity: 18.00%
Cost of debt: 10.00%
Planned issuance of debt: \$400,000.00

A - After Rayburn repurchases the stock, what will the firm's WACC be?
B - After the repurchase, what will the cost of equity be? Explain.

C - Use your answer to (b) to compute Rayburn's WACC after the repurchase. Is this answer consistant with (a)?

A - After Rayburn repurchases the stock, what will the firm's WACC be?

The ...

Solution Summary

The solution calculates the firm's WACC and the cost of equity after the repurchase of stock

\$2.19