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Please show all work. Thanks! 1. Loman Enterprises is a public traded company, with 50 million shares outstanding, trading at $15/share and $250 million in
Please show all work. Thanks!
1. Loman Enterprises is a public traded company, with 50 million shares outstanding, trading at $15/share and $250 million in debt outstanding (book and market value). The firm currently has a pre-tax cost of debt of 6.5% and a cost of capital of 12%. The riskfree rate is 2.5%, the equity risk premium is 6% and the marginal tax rate is 40% Shaken by the financial crisis, the firm is planning on issuing new shares and retiring all of its debt. If it does so, what will its cost of capital be after the transactionStep by Step Solution
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