Question
Global Pistons (GP) has common stock with a market value of $470 million and debt with a value of $299 million. Investors expect a 13%
Global Pistons (GP) has common stock with a market value of $470 million and debt with a value of $299 million. Investors expect a 13% return on the stock and a 5% return on the debt. Assume perfect capital markets.
a. Suppose GP issues $299 million of new stock to buy back the debt. What is the expected return of the stock after this transaction?
My question is Why is the WACC used to calculate the expected return of the stock?
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Financial Accounting and Reporting a Global Perspective
Authors: Michel Lebas, Herve Stolowy, Yuan Ding
4th edition
978-1408066621, 1408066629, 1408076861, 978-1408076866
