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?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 7P

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