A firm currently finances its operations with $50M of equity at a required return of 15%...

A firm currently finances its operations with $50M of equity at a required return of 15% and $50M of bonds at an annual coupon rate of 9%. The firm is considering issuing another $10M of bonds (with the same coupon rate) to retire some equity.

(A) What is the firm’s current cost of capital? What do you expect firm’s cost of capital to be after the recapitalization?

(B) What do you expect the firm’s cost of equity to be after the recapitalization?

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jeff jeffy answered 1 year ago

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