Question
A firm is worth $100 million and has a cost of capital of 11%. It is all equity financed. If the firm sells $30 million
A firm is worth $100 million and has a cost of capital of 11%. It is all equity financed. If the firm sells $30 million of debt with a 7% promised return and uses it to repurchase part of the firms stock, what will the firms cost of capital then be?
Group of answer choices
A. Not determinable
B. 11.0%
C. 10.4%
INCORRECT ANSWER WOULD BE 9.8%
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Finance For Executives Managing For Value Creation
Authors: Gabriel Hawawini, Claude Viallet
2nd Edition
0324117752, 9780324117752
