Final answer:
To calculate the required return on Ryan's equity after the restructuring, we need to calculate the weighted average cost of capital (WACC). WACC is the average rate of return that a company must earn on its existing assets to satisfy its creditors, shareholders, and other stakeholders.
Step-by-step explanation:
In order to calculate the required return on Ryan's equity after the restructuring, we can use the weighted average cost of capital (WACC) formula. WACC is the average rate of return that a company must earn on its existing assets to satisfy its creditors, shareholders, and other stakeholders. It is calculated by finding the weighted average of the cost of debt and the cost of equity, based on the market value of each component.
In this case, after the restructuring, Ryan will have $2.09 million of debt and $7.94 million of equity. The cost of debt can be calculated using the coupon rate, tax rate, and market value of the debt. The cost of equity can be determined using the earnings of the company and the market value of the equity. Plugging in the values, we can calculate the WACC and use it as the required return on Ryan's equity after the restructuring.
WACC = (Cost of Debt * Weight of Debt) + (Cost of Equity * Weight of Equity)