Question
B. Falcons financial staff considers changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the
B. Falcons financial staff considers changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the companys bonds would rise to 10.5%. The proposed change will not affect the companys tax rate.
-
What would be the companys new cost of equity if it adopted the proposed change in the capital structure?
-
What would be the companys new WACC if it adopted the proposed change in the capital structure?
-
Based on your analyses to question 6, would you advise Falcons board to adopt the proposed change in the capital structure? Explain.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started