The market value of Rumbers Inc is currently 78 0 in equity and 22 0 in debt An analyst finds the following information about the firm Its current WACC is 17 0 marginal corporate tax rate is 36 0 the yield to maturity on its outstanding bonds is 8 2 and is expected to remain constant the risk free rate is 3 0 , and the expected return on the market portfolio is 9 5 Rumbers proposes to change its capital structure through a debt for equity swap Under this proposal its new debt to equity ratio will be 50 0 over 50 0 a) What is the current equity cost of capital (Give answer as to 2 decimal places) b) If the firm changes its capital structure as proposed, what would be the new equity cost of capital (Give answer as to 2 decimal places) The market value of Rumbers Inc is currently 78 0 in equity and 22 0 in debt An analyst finds the following information about the firm Its current WACC is 17 0 marginal corporate tax rate is 36 0 the yield to maturity on its outstanding bonds is 8 2 and is expected to remain constant the risk free rate is 3 0 , and the expected return on the market portfolio is 9 5 Rumbers proposes to change its capital structure through a debt for equity swap Under this proposal its new debt to equity ratio will be 50 0 over 50 0 a) What is the current equity cost of capital (Give answer as to 2 decimal places) b) If the firm changes its capital structure as proposed, what would be the new equity cost of capital (Give answer as to 2 decimal places)

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Posted on Sep 20, 2024

The market value of Rumbers Inc is currently 78.0% in equity and 22.0% in debt. An analyst finds the following information about the firm: Its

The market value of Rumbers Inc is currently 78.0% in equity and 22.0% in debt. An analyst finds the following information about the firm:

Its current WACC is 17.0% marginal corporate tax rate is 36.0% the yield to maturity on its outstanding bonds is 8.2% and is expected to remain constant the risk-free rate is 3.0%, and the expected return on the market portfolio is 9.5% Rumbers proposes to change its capital structure through a debt for equity swap. Under this proposal its new debt to equity ratio will be 50.0% over 50.0%.

a) What is the current equity cost of capital? % (Give answer as % to 2 decimal places)

b) If the firm changes its capital structure as proposed, what would be the new equity cost of capital? % (Give answer as % to 2 decimal places)

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The market value of Rumbers Inc is currently 78.0% in equity and 22.0% in debt. An analyst finds the following information about the firm: Its current WACC is 17.0% marginal corporate tax rate is 36.0% the yield to maturity on its outstanding bonds is 8.2% and is expected to remain constant the risk-free rate is 3.0%, and the expected return on the market portfolio is 9.5% Rumbers proposes to change its capital structure through a debt for equity swap. Under this proposal its new debt to equity ratio will be 50.0% over 50.0%. a) What is the current equity cost of capital? % (Give answer as % to 2 decimal places) b) If the firm changes its capital structure as proposed, what would be the new equity cost of capital? % (Give answer as % to 2 decimal places)