Happy Corp. is all-equity-financed. The expected rate of return on the company's shares is 15%. If the company recapitalizes by issuing debt and targets a
Happy Corp. is all-equity-financed. The expected rate of return on the company's shares is 15%. If the company recapitalizes by issuing debt and targets a 30% debt-to-total capital (D/((D+E)=.30), what is Happy Corp.'s new weighted average cost of capital? Assume the borrowing rate is 8% and the tax rate is 40%.
Round to nearest 1 decimal.
Selected Answer: 11.9, 12.7, 12.65 ALL OF THESES ANSWERS ARE INCORRECT Response Feedback: Incorrect. Remember to calculate the ReL first and then use that levered equity value to recalculate the WACC
Please help find the right answer so that I can understand the material
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Authors: Michael K. Harrington
1st Edition
1284026124, 9781284026122
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