Unformatted text preview: MRP is 5%. The beta for the shoe company is 1.75. The White Queen arranged for the hatter to meet the Tweedle Bros. Investments Co. The Tweedle brothers have suggested that the hatter use debt to buy-back the firm’s stock. Tweedle has determined that Shoe can issue $10M in risk-free debt if the proceeds are used to retire equity. And that is exactly what he will do. Assume a tax rate of 0% (or 33% for another version). What is the stock price after the recapitalization is complete? What is the new equity beta? How many shares are outstanding?...
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- Spring '06
- Finance, Mad Hatter, Hatter, the shoe company, White Queen