12-1 As Chief Financial Officer of the Magnificent Electronics Corporation (MEC), you are considering a recapitalization plan that would convert MEC from its current all-equity capital structure to one including substantial financial leverage. MEC now has 500,000 shares of common stock outstanding, which are selling for $60 each, and you expect the firms EBIT to be $2,400,000 per year, for the foreseeable future. The recapitalization proposal is to issue $15,000,000 worth of long-term debt, at an interest rate of 6.0 percent, and use the proceeds to repurchase 250,000 shares of common stock worth $15,000,000. Assuming there are no market frictions such as corporate or personal income taxes, calculate the expected return on equity for MEC shareholders, under both the current all-equity capital structure and under the recapitalization plan.
https://firstgrader.net/wp-content/uploads/2020/04/logo-300x75.png 0 0 Paul https://firstgrader.net/wp-content/uploads/2020/04/logo-300x75.png Paul2022-08-28 14:00:012022-08-28 14:00:0112-1 As Chief Financial Officer of the Magnificent Electronics Corporation (MEC), you are considering a recapitalization plan that would convert MEC