Question: Rigby Inc has recently changed its capital structure substantially by raising new equity and retiring debt. Prior to the restructuring, Rigby Inc had a debt-equity
Rigby Inc has recently changed its capital structure substantially by raising new equity and retiring debt. Prior to the restructuring, Rigby Inc had a debt-equity ratio of 0.6 (in market value terms). Its cost of equity capital was 12% and its cost of debt was 6%. After the change, its debt-equity ratio decreased to 0.2 (in market value terms) but the cost of its debt remained unchanged.
Assume that the risk-free rate is 4%, the market risk premium is 5%, and the effective tax rate is 30%.
Compute the new equity beta (E), new cost of equity (RS), and new WACC of Rigby Inc after the restructuring.
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New be =
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New RS =
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New WACC =
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