Bickley Engineering Company has a capital structure of 30% Debt and 70% Equity. Its current Beta is 1.3, and its Market Risk Premium is 7.5% Points. The current Risk Free Rate is 3.5%. Bickley’s marginal tax rate is 40%.
What is the Unlevered Beta of Bickley?
Bickley’s management would like to change its capital structure to 15% Debt and 85% equity by retiring its bonds yielding 8%. The remaining long term debt will be at 7%. The marginal tax rate will remain the same.
What will be Bickley’s new Beta with this new 15/85 capital structure?
What is the WACC (Weighted Average Cost of Capital) of Bickely with its 30/70 capital structure? Bickley’s average borrowing rate with this capital structure is 7.5%.
What will be Bickley’s WACC with its 15/85 capital structure?