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Dye Industries currently uses no debt, but its new CFO is considering changing the capital structure to 69.5% debt (wa) by issuing bonds and
Dye Industries currently uses no debt, but its new CFO is considering changing the capital structure to 69.5% debt (wa) by issuing bonds and using the proceeds to repurchase and retire some common shares so the percentage of common equity in the capital structure (wc) = 1-wa. Given the data shown below, by how much would this recapitalization change the firm's cost of equity, i.e., what is r - ru? Do not round your intermediat calculations. Risk-free rate, TRF 5.50% Tax rate, T 25% Market risk prem, RPM 4.00% Current Wa 0% Current beta, bu 1.40 Target wa 69.5% 8.61% 6.70% 8.13% 7.18% 9.57%
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