uppose company A is 100% equity and goes through a leverage recapitalisation operation, i.e., it issues debt and all the proceeds from debt are used to buy back equity. Select all correct answers below (multiple correct answers are possible). a. In a perfect capital markets world with taxes, the share price increases with the leverage recapitalisation operation. b. In a perfect capital markets world without taxes, WACC is the same before and after the leverage recapitalisation operation. c. In a perfect capital markets world without taxes, we can be 100% sure the cost of debt is the same before and after the leverage recapitalisation operation. d. In a perfect capital markets world without taxes, the cost of equity is the same before and after the leverage recapitalisation operation. e. In a perfect capital markets world with taxes

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Suppose company A is 100% equity and goes through a leverage recapitalisation operation, i.e., it issues debt and all the proceeds from debt are used to buy back equity. Select all correct answers below (multiple correct answers are possible).

a. In a perfect capital markets world with taxes, the share price increases with the leverage recapitalisation operation.

b. In a perfect capital markets world without taxes, WACC is the same before and after the leverage recapitalisation operation.

c. In a perfect capital markets world without taxes, we can be 100% sure the cost of debt is the same before and after the leverage recapitalisation operation.

d. In a perfect capital markets world without taxes, the cost of equity is the same before and after the leverage recapitalisation operation.

e. In a perfect capital markets world with taxes, the share price decreases with the leverage recapitalisation operation.

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