Question
Honeywell International Inc. (HON) has a market debt-equity ratio of 0.5. Assume its current debt cost of capital is 6.5%, and its equity cost of
Honeywell International Inc. (HON) has a market debt-equity ratio of 0.5.
Assume its current debt cost of capital is 6.5%, and its equity cost of capital is 14%.
If HON issues equity and uses the proceeds to repay its debt and reduce its debt-equity ratio to 0.4, it will lower its debt cost of capital to 5.75%. With perfect capital markets, what effect will this transaction have on HONs equity cost of capital and WACC?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
The Little Book Of Common Sense Investing The Only Way To Guarantee Your Fair Share Of Stock Market Returns
Authors: John C. Bogle
1st Edition
1119404509, 978-1119404507
