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Hartford Mining has 50 million shares that are currently trading for $7 per share and $130 million worth of debt. The debt is risk free
Hartford Mining has 50 million shares that are currently trading for $7 per share and
$130 million worth of debt. The debt is risk free and has an interest rate of 7%,
and the expected return of Hartford stock is 10%.
Suppose a mining strike causes the price of Hartford stock to fall 22% to
$5.46 per share. The value of the risk-free debt is unchanged. Assuming there are no taxes and the risk (unlevered beta) of Hartford's assets is unchanged, what happens to Hartford's equity cost of capital?
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