Refer back to problem 23. Suppose Big Oil starts from the financing mix in Table 13.2, and

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Refer back to problem 23. Suppose Big Oil starts from the financing mix in Table 13.2, and then borrows an additional $200 million from the bank. It then pays out a special $200 million dividend, leaving its assets and operations unchanged. What happens to Big Oil's WACC, still assuming it pays no taxes? What happens to the cost of equity?
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Look again at our calculation of Big Oil's WACC. Suppose Big Oil is excused from paying taxes. How would its WACC change? Now suppose Big Oil makes a large stock issue and uses the proceeds to pay off all its debt. How would the cost of equity change?
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Fundamentals of Corporate Finance

ISBN: 978-1259024962

6th Canadian edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim

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