Question
Creative Solutions Inc has 15 million shares outstanding, trading at a price of $16 per share, and $260 million in debt. Creatives equity cost of
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Creative Solutions Inc has 15 million shares outstanding, trading at a price of $16 per share, and $260 million in debt. Creatives equity cost of capital is 22% and its debt cost of capital is 10%. The company decides to issue equity and use the proceeds to pay back its entire debt. Assume that there are no taxes or costs of financial distress.
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(5 points) What is the firms market capitalization after the change in capital structure?
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(5 points) What is the share price after the change in capital structure?
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(5 points) What is the equity cost of capital after the change in capital structure?
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Equity Valuation And Portfolio Management
Authors: Frank J. Fabozzi, Harry M. Markowitz
1st Edition
047092991X, 9780470929919
