Question
Company XYZ has issued 50 million shares worth $4 each. The company also has $200 million of risk-free debt at a rate of 5%. Shareholders
Company XYZ has issued 50 million shares worth $4 each. The company also has $200 million of risk-free debt at a rate of 5%. Shareholders expect a return of 11%. Due to the bleak economic outlook, market capitalization is down 25%, while the value of the debt remains unchanged. With no tax, and with zero debt beta unchanged, what is XYZ's new cost of equity?
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Principles of managerial finance
Authors: Lawrence J Gitman, Chad J Zutter
12th edition
9780321524133, 132479540, 321524136, 978-0132479547
