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Author Question: Fawlty Brake Systems Inc. is all equity financed and generates perpetual annual EBIT of $600. Assume ... (Read 31 times)

newbem

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on: Apr 25, 2021
Fawlty Brake Systems Inc. is all equity financed and generates perpetual annual EBIT of $600. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that Fawlty has a 100% payout rate, 1,000 shares outstanding, and that shareholders require a return of 6%. Assume that the tax rate is 0%. 
Fawlty is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $10.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds worth a total sum of $2,000 and a coupon rate (and yield) of 4%. Assume that the tax rate is 0%.
If Fawlty goes ahead with the repurchase, then what is its WACC after the repurchase is complete?
◦ 4.0%
◦ 4.5%
◦ 5.0%
◦ 5.5%
◦ 6.0%
Corporate Finance Online ¦ Eakins, McNally ¦ 2nd Edition
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Marked as best answer by newbem on Apr 25, 2021

Carissamariew

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Reply #1 on: Apr 25, 2021
Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.
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newbem

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Reply 2 on: Apr 25, 2021
YES! Correct, THANKS for helping me on my review

tkempin

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Reply 3 on: Yesterday
Gracias!

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