ABCD Inc has debt outstanding of UDS 1.18 billion and 45.99 million shares outstanding, trading at USD
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ABCD Inc has debt outstanding of UDS 1.18 billion and 45.99 million shares outstanding, trading at USD 9 per share. The debt is rated B- . and has a beta of 0.4 The YTM of the debt is 18%, The stock has a beta of 2.20. ABCD is planning to pay down debt and reduce its debt to equity ratio (D/E) to 50% which should raise its debt rating to A and lower the pre- tax rate to 7.25%. The beta of debt after the recapitalization will be close to zero. The tax rate for the firm is 40%. The teasury bond rate is 7%. The equity risk premmium is 5.5%.
What will be its cost of capital after the capital structure adjustment?
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-1292018409
3rd edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
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