5 Dye Industries currently uses no debt, but its new CFO is considering changing the capital structure to 40.0% debt (wd) by issuing bonds and using the proceeds to repurchase and retire common shares...


5


Dye Industries currently uses no debt, but its new CFO is considering changing the capital structure to 40.0% debt (wd) by issuing bonds and using the proceeds to repurchase and retire common shares so the percentage of common equity in the capital structure (wc) = 1 – wd.  Given the data shown below, by how much would this recapitalization change the firm's cost of equity, i.e., what is rL - rU?


Risk-free rate, rRF            6.00%                  Tax rate, T      30%
Market risk premium, RPM      4.00%                  Current wd      0%
Current beta, bU             1.15                  Target wd      40%


Group of answer choices

1.66%



2.15%



2.23%



2.02%



2.45%



1.84%




Jun 10, 2022
SOLUTION.PDF

Get Answer To This Question

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here