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Omaha Corp. has no debt and operates in a frictionless financial market. Its assets will be worth either $300 million or $150 million in
Omaha Corp. has no debt and operates in a frictionless financial market. Its assets will be worth either $300 million or $150 million in one year with equal probability. Its equity is currently worth $180 million. If Omaha issues $60 million of risk-free debt at an interest rate of 5% and uses the proceeds to immediately repurchase stock today, what will the cost of Omaha's equity (cost of capital) be after the share repurchase is completed?
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Multinational Finance Evaluating Opportunities Costs and Risks of Operations
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