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Yellowknife Mining has 80 million shares that are currently trading for $5 per share and $150 million worth of debt. The debt is risk free
Yellowknife Mining has 80 million shares that are currently trading for $5 per share and $150 million worth of debt. The debt is risk free and has an interest rate of 2% , and the expected return of Yellowknife stock is 13% . Suppose a mining strike causes the price of Yellowknife stock to fall 30% to $3.50 per share. The value of the risk-free debt is unchanged. Assuming there are no taxes and the risk (unlevered beta) of Yellowknife's assets is unchanged, what happens to Yellowknife's equity cost of capital?
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