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
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
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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