A firm in the 20% marginal tax bracket is currently financed with $500 debt and $1,000 equity. The debt carries an interest rate of 6%; the equity's cost of capital is 12%.
The risk-free rate is 4%; the equity premium is 3%. What is the firm's beta? The firm is pondering a recapitalization to $1,000 debt, which would increase the debt's interest rate to 8%.The firm will exist for only 1 more year. What would the new equity be worth?