Question
Gaucho Services starts life with all-equity financing and a cost of equity of 12%. Suppose it refinances to the following market-value capital structure: Debt (
Gaucho Services starts life with all-equity financing and a cost of equity of 12%. Suppose it refinances to the following market-value capital structure:
Debt (D) 40% at rD = 8.5%
Equity (E) 60%
Use MM's proposition 2 to calculate the new cost of equity. Gaucho pays taxes at a marginal rate of Tc = 40%. Calculate Gaucho's after-tax weighted-average cost of capital.
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Financial Institutions Management A Risk Management Approach
Authors: Anthony Saunders, Marcia Millon Cornett
9th edition
1259717771, 1259717772, 9781260048186, 1260048187, 978-1259717772
