Aceline Corp is currently all equity financed. Cost of capital is 15% and firm value is 10 million. The company is considering a 4 million debt issue and 8% interest rate. Money is to repurchase shares. Marginal tax rate is 35%. According to m and m proposition what is Acelines return on equity after the debt issue?
Aceline Corp is currently all equity financed. Cost of capital is 15% and firm value is 10 million. The company is considering a 4 million debt issue and 8% interest rate. Money is to repurchase shares. Marginal tax rate is 35%. According to m and m proposition what is Acelines return on equity after the debt issue?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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And return on equity is: 17.46% according to m and m proposition
A. 13.09%
B. 17.46%
C. 13.16%
D. 15%
E. 16.70%
Transcribed Image Text:l Bell
4:53 PM
Aceline Corp is currently
all equity financed. Cost of
capital is 15% and firm
value is 10 million. The
company is considering a 4
million debt issue and 8%
interest rate. Money is to
repurchase shares.
Marginal tax rate is 35%.
According to m and m
proposition what is
Acelines return on equity
after the debt issue?
VX
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