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Kean University College of Business and Public Administration Corporate Finance II Prof. Benito Sanchez i . Morgan Entertainment has a levered beta of 1.20. The firm's capital structure consists of 40% debt and 60% equity and it has a corporate tax rate of 40%. What is Morgan's unlevered beta? ii . Brandi Co. has an unlevered beta of 1.10. The firm currently has no debt, but is considering changing its capital structure to be 30% debt and 70% equity. If its corporate tax rate is 40%, what is Brandi's levered beta? iii . From the information below, select the optimal capital structure for Minnow Entertainment Company. a. Debt = 40%; Equity = 60%; EPS = $2.95; Stock price = $26.50. b. Debt = 50%; Equity = 50%; EPS = $3.05; Stock price = $28.90. c. Debt = 60%; Equity = 40%; EPS = $3.18; Stock price = $31.20. d. Debt = 80%; Equity = 20%; EPS = $3.42; Stock price = $30.40. e. Debt = 70%; Equity = 30%; EPS = $3.31; Stock price = $30.00. iv . Aaron Athletics is trying to determine its optimal capital structure. The company’s capital structure consists of debt and common stock. In order to estimate the cost of debt, the company has produced the following table: Debt-to-total- Equity-to-total- Debt-to-equity Bond Before-tax assets ratio (w d )
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This note was uploaded on 02/08/2011 for the course ACCT 3100 taught by Professor Yamoh during the Spring '11 term at Kean.

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