RDJ Corp. has expected earnings before interest and taxes (EBIT) of $5,000 (assumed to continue forever). Its unlevered cost of capital is 13.0% and its corporate tax rate is 35%. The company would like to borrow debt that amounts to $2,000 and use the proceeds to buy back shares. This debt has a 7.0% annual interest rate and pays interests annually. What is the firm's cost of equity, after this capital conversion? O A. OB. O C. OE. O D. 10.05% 13.33% 15.14% 13.82% 12.65%
RDJ Corp. has expected earnings before interest and taxes (EBIT) of $5,000 (assumed to continue forever). Its unlevered cost of capital is 13.0% and its corporate tax rate is 35%. The company would like to borrow debt that amounts to $2,000 and use the proceeds to buy back shares. This debt has a 7.0% annual interest rate and pays interests annually. What is the firm's cost of equity, after this capital conversion? O A. OB. O C. OE. O D. 10.05% 13.33% 15.14% 13.82% 12.65%
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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Transcribed Image Text:RDJ Corp. has expected earnings before interest and taxes (EBIT) of $5,000 (assumed to continue forever). Its
unlevered cost of capital is 13.0% and its corporate tax rate is 35%. The company would like to borrow debt that
amounts to $2,000 and use the proceeds to buy back shares. This debt has a 7.0% annual interest rate and pays
interests annually. What is the firm's cost of equity, after this capital conversion?
O A.
O B.
O C.
O E.
10.05%
13.33%
15.14%
OD. 13.82%
12.65%
B
10
19
28
37
46
Finis
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