Question
An investment bank has advised the firm to restructure by issuing debt to increase D/E to 1.97 and using the proceeds to buy back equity.
An investment bank has advised the firm to restructure by issuing debt to increase D/E to 1.97 and using the proceeds to buy back equity. The new debt will approximately double interest expense and have little impact on EBIT. What is the new estimated cost of capital?
Step by Step Solution
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Step: 1
To calculate the new estimated cost of capital we need to consider the impact of the debt restructuring on the firms capital structure and the cost of ...
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Risk Management and Financial Institutions
Authors: Hull John
4th edition
1118955943, 978-1118955949
