Lighter Industrial Corporation (LIC) is considering a large-scale recapitalization. Currently, LIC is financed with 25% debt and
Question:
Lighter Industrial Corporation (LIC) is considering a large-scale recapitalization. Currently, LIC is financed with 25% debt and 75% equity. LIC is considering increasing its level of debt until it is financed with 60% debt and 40% equity. The beta on its common stock at the current level of debt is 1.5, the risk-free rate is 6%, the market risk premium is 4%, and LIC faces a 40% federal plus state tax rate.
a. What is LIC's current cost of equity?
b. What is LIC's unlevered beta?
c. What will be the new beta and new cost of equity if LIC recapitalizes?
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a What is LICs current cost of equity The cost of equity Re can be calculated using the Capital Asse...View the full answer
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Related Book For 
Financial Management Theory & Practice
ISBN: 9780324652178
12th Edition
Authors: Eugene BrighamMichael Ehrhardt
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