Use these facts for this and the following three questions. A company is financed equally by $1 million in debt and $1 million in equity. The cost of debt is 5%, and the cost of equity is 10%. The company now makes a further $200,000 issue of debt and uses the proceeds to repurchase equity. This causes the cost of debt to rise to 6%. Assume the firm pays no taxes. How much debt does the company now have, to the nearest thousand dollars? $00000,000 1.200

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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Give typing answer with explanation and conclusion 

Use these facts for this and the following three questions.
A company is financed equally by $1 million in debt and $1 million in equity. The cost of debt is 5%, and the cost of equity is 10%. The company now
makes a further $200,000 issue of debt and uses the proceeds to repurchase equity. This causes the cost of debt to rise to 6%. Assume the firm pays
no taxes.
How much debt does the company now have, to the nearest thousand dollars? $(XXXXX),000
1,200
Transcribed Image Text:Use these facts for this and the following three questions. A company is financed equally by $1 million in debt and $1 million in equity. The cost of debt is 5%, and the cost of equity is 10%. The company now makes a further $200,000 issue of debt and uses the proceeds to repurchase equity. This causes the cost of debt to rise to 6%. Assume the firm pays no taxes. How much debt does the company now have, to the nearest thousand dollars? $(XXXXX),000 1,200
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