Dyson Inc. currently finances with 20.0% debt (i.e., w = 20% ), but its new CFO is considering changing the capital d d structure so w = 62.5% by issuing additional bonds and using the proceeds to repurchase and retire common shares so the percentage of common equity in the capital structure (w) = 1-w. Given the data shown below, by how much would this recapitalization change the firm's cost of equity? Do not round your intermediate calculations. (Hint: You must unlever the current beta and then use the unlevered beta to solve the problem.) Risk-free rate, Market risk prem, RP Current beta, b Select one: a. 9.18% b. 10.93% c. 11.39% d. 11.48% e. 9.64% Clear my choice M LI RF 3 c Dyson Inc. currently finances with 20.0% debt (i.e., wd=20%), but its new CFO is considering changing the capital structure so wa 62.5% by issuing additional bonds and using the proceeds to repurchase and retire common shares so the percentage of common equity in the capital structure (wc) = 1-wd. Given the data shown below, by how much would this recapitalization change the firm's cost of equity? Do not round your intermediate calculations. (Hint: You must unlever the current beta and then use the unlevered beta to solve the problem.) Risk-free rate, TRF 5.00% Tax rate, T 25% Market risk prem, RPM 6.00% Current wd 20% Current beta, b₁₁ 1.60 Target wd 62.5% Select one: O a. 9.18% ○ b. 10.93% O c. 11.39% O d. 11.48% ○ e. 9.64%
Dyson Inc. currently finances with 20.0% debt (i.e., w = 20% ), but its new CFO is considering changing the capital d d structure so w = 62.5% by issuing additional bonds and using the proceeds to repurchase and retire common shares so the percentage of common equity in the capital structure (w) = 1-w. Given the data shown below, by how much would this recapitalization change the firm's cost of equity? Do not round your intermediate calculations. (Hint: You must unlever the current beta and then use the unlevered beta to solve the problem.) Risk-free rate, Market risk prem, RP Current beta, b Select one: a. 9.18% b. 10.93% c. 11.39% d. 11.48% e. 9.64% Clear my choice M LI RF 3 c Dyson Inc. currently finances with 20.0% debt (i.e., wd=20%), but its new CFO is considering changing the capital structure so wa 62.5% by issuing additional bonds and using the proceeds to repurchase and retire common shares so the percentage of common equity in the capital structure (wc) = 1-wd. Given the data shown below, by how much would this recapitalization change the firm's cost of equity? Do not round your intermediate calculations. (Hint: You must unlever the current beta and then use the unlevered beta to solve the problem.) Risk-free rate, TRF 5.00% Tax rate, T 25% Market risk prem, RPM 6.00% Current wd 20% Current beta, b₁₁ 1.60 Target wd 62.5% Select one: O a. 9.18% ○ b. 10.93% O c. 11.39% O d. 11.48% ○ e. 9.64%
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 4P
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