Question
GPX issued 50 million shares, each worth $ 4. The company also has $ 200 million in risk-free debt at the rate, Rf, of 5%.
GPX issued 50 million shares, each worth $ 4. The company also has $ 200 million in risk-free debt at the rate, Rf, of 5%. The shareholders hope for a litai return of 11%. Due to the grim economic outlook, market capitalization drops 25% while the value of debt remains unchanged. Without taxes, and at unchanged zero debt (BU) beta, what is GPX's new cost of equity (RE)?
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Public Finance A Contemporary Application of Theory to Policy
Authors: David N Hyman
11th edition
9781305474253, 1285173953, 1305474252, 978-1285173955
