Assume a perfect capital market (as in MM 1958). There is a firm that was financed half through equity and half through debt. Originally the cost of debt was 5% and the cost of equity was 15%. Now the firm increased the ratio of debt to be D/(D+E)=2/3 while cost debt is still 5%. Which of the
Assume a perfect capital market (as in MM 1958). There is a firm that was financed half through equity and half through debt. Originally the cost of debt was 5% and the cost of equity was 15%. Now the firm increased the ratio of debt to be D/(D+E)=2/3 while cost debt is still 5%. Which of the
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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Assume a perfect capital market (as in MM 1958). There is a firm that was financed half through equity and half through debt. Originally the cost of debt was 5% and the
(i) The current cost of capital of the firm is 15%.
(ii) The current cost of equity of the firm is 15%.
(iii) The current cost of capital of the firm is 10%.
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