14. MM Proposition 2 (S16-3) Look back to Section 16-2. Suppose that Ms. Macbeths investment bankers have
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14. MM Proposition 2 (S16-3) Look back to Section 16-2. Suppose that Ms. Macbeth’s investment bankers have informed her that since the new issue of debt is risky, debtholders will demand a return of 12.5%, which is 2.5% above the risk-free interest rate.
a. What are rA and rE?
b. Suppose that the beta of the unlevered stock was 0.6. What will βA, βE, and βD be after the change to the capital structure?
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Related Book For 
Principles Of Corporate Finance
ISBN: 9781264080946
14th Edition
Authors: Richard Brealey, Stewart Myers, Franklin Allen, Alex Edmans
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