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You are analyzing a company that is curretnly 100% equity financed and you note the following information: The company's CFO recognizes that a capital structure
You are analyzing a company that is curretnly 100% equity financed and you note the following information: The company's CFO recognizes that a capital structure of 100% equity may not be the most efficient. You have been asked to examine the effects of changes in the capital structure, whereby the company would issue debt and repurchase equity. Part 1: If Debt/Value is equal to Debt/(Debt + Equity), calculate the required return to equity at a capital structure with 20% Debt/Value ( 5 pts) (Please provide answer in gray box) Note: D/V is NOT equal to D/E. You should know the following: D/V=(D/E)/(1+D/E) D/E=(D/V)/(1D/V) Rs= You are analyzing a company that is curretnly 100% equity financed and you note the following information: The company's CFO recognizes that a capital structure of 100% equity may not be the most efficient. You have been asked to examine the effects of changes in the capital structure, whereby the company would issue debt and repurchase equity. Part 1: If Debt/Value is equal to Debt/(Debt + Equity), calculate the required return to equity at a capital structure with 20% Debt/Value ( 5 pts) (Please provide answer in gray box) Note: D/V is NOT equal to D/E. You should know the following: D/V=(D/E)/(1+D/E) D/E=(D/V)/(1D/V) Rs=
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