Question
Two public companies (Jensen and Jackson) operate in the same industry, will generate exactly the same operating profit, and have identical net operating assets. What
Two public companies (Jensen and Jackson) operate in the same industry, will generate exactly the same operating profit, and have identical net operating assets.
What is the weighted average cost of capital for each company? Which company will have a lower stock price?
|
| Jensen | Jackson |
| Total Debt | $0 | $32,000 |
| Total Shareholder Equity | $64,000 | $32,000 |
| Cost of Debt | 3.5% | 5.0% |
| Cost of Equity | 5.5% | 7.0% |
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Financial Accounting
Authors: Robert Libby, Patricia Libby, Frank Hodge
10th Edition
1260481352, 978-1260481358
