Hartford Mining has 50 million shares that are currently trading for $4 per share and $200 million
Question:
Hartford Mining has 50 million shares that are currently trading for $4 per share and $200 million worth of debt. The debt is risk free and has an interest rate of 5%, and the expected return of Hartford stock is 11%. Suppose a mining strike causes the price of Hartford stock to fall 25% to $3 per share. The value of the risk-free debt is unchanged. Assuming there are no taxes and the risk (unlevered beta) of Hartford’s assets is unchanged, what happens to Hartford’s equity cost of capital?
Step by Step Answer:
Debt 130 Equity 350 Debt equity r...View the full answer
Related Video
The Dupont analysis is an expanded return on equity formula, calculated by multiplying the net profit margin by the asset turnover by the equity multiplier. The DuPont analysis is also known as the DuPont identity or DuPont model.This Video will guide on how to calculate return on Equity and estimate profitability of shareholders using DuPont Analysis.
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