Question
Struggling on this question can someone show me how I can solve it. Thanks. Sunny Corp. wants to increase is debt-to-equity ratio from 0.25 to
Struggling on this question can someone show me how I can solve it. Thanks.
Sunny Corp. wants to increase is debt-to-equity ratio from 0.25 to 1.0 by issuing debt and using the proceeds to buy back some of its equity.The current market value of the firm's assets is $2,000 and there are 800 shares currently outstanding. The firm's debt is risk-free and perpetual.The current risk-free rate is 6%.Assume the firm's corporate tax rate is zero and that the share price is not affected by changes in capital structure.You currently own 100 shares of Sunny.
a) Assume the firm decides not to change its capital structure structure, but you want to create the risk-return profile of the more highly levered firm.What percentage of the current firm's equity should you own to achieve your objective?
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