9. The management of Tarantulagoodies is considering a reduction in the corporation's debt ratio. The following...
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9. The management of Tarantulagoodies is considering a reduction in the corporation's debt ratio. The following information is available: Debt Common Stock $13,000,000, kd=7%, tax-rate-21% $20,000,000, B=1.4, RF-3.5%, E(RM)=10%. The issuance of $5,000,000 in common stock and repurchase of debt in that same amount is expected to result in the reduction in kd to 6.5%. The impact of the action on the cost of equity is to be determined. Should management pursue the change in debt ratio? Why/why not? bo 9. The management of Tarantulagoodies is considering a reduction in the corporation's debt ratio. The following information is available: Debt Common Stock $13,000,000, kd=7%, tax-rate-21% $20,000,000, B=1.4, RF-3.5%, E(RM)=10%. The issuance of $5,000,000 in common stock and repurchase of debt in that same amount is expected to result in the reduction in kd to 6.5%. The impact of the action on the cost of equity is to be determined. Should management pursue the change in debt ratio? Why/why not? bo
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