Question
Dyson Inc. currently finances with 20.0% debt (i.e., w d = 20%), but its new CFO is considering changing the capital structure so w d
Dyson Inc. currently finances with 20.0% debt (i.e., wd = 20%), but its new CFO is considering changing the capital structure so wd = 36.0% by issuing additional bonds and using the proceeds to repurchase and retire common shares so the percentage of common equity in the capital structure (wc) = 1 - wd. Given the data shown below, by how much would this recapitalization change the firm's cost of equity? (Hint: You must unlever the current beta and then use the unlevered beta to solve the problem.)
| Risk-free rate, rRF | 5.00% | Tax rate, T | 40% |
| Market risk premium, RPM | 6.00% | Current wd | 20% |
| Current beta, bL1 |
current beta 1.65. target wd 36%
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Financial Management Of Health Care Organizations
Authors: William N. Zelman, Michael J. McCue, Noah D. Glick, Marci S. Thomas
5th Edition
1119553849, 9781119553847
