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Allushta [10]
3 years ago
10

Precise Electronics Inc. has projected EBIT to be $225,000 for next year. Their tax rate is 21% and there is $`500,000 in equity

. Precise Electronics Inc has no debt currently, but the board is considering a loan of $150,000 at 8% interest, which they will use to repurchase shares of their own stock at $50 per share. If there is a recession, EBIT could be only 75% of projected. If there is an expansion, EBIT might be 40% greater than projected. What will their return on equity be under the current structure and under the proposed structure for each scenario? Is the restructuring a good idea?
Current Structure:
Worst Case________Base Case________Best Case________.
Proposed Structure:
Worst Case________Base Case________Best Case ________.
Should they do the re-structuring?
A. Yes.
B. No
Business
1 answer:
777dan777 [17]3 years ago
4 0
the answer is no just took test
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The required return for the new project is 6.87%

Explanation:

In order to calculate the required return for the new project we would have to calculate the Weighted Average Cost of Capital (WACC) adjusted by risk adjustment factor .

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