Rose International is currently an all-equity firm and has just announced plans to expand its current business.
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Question:
a)If Rose finances their expansion by issuing new stock, what will Rose's cost of equity capital be?(5 marks)
b)If Rose finances their expansion by issuing $100 million in debt at 5%, what will Rose's cost of equity capital be?(5 marks)
c)Show mathematically that the stock price of Rose does not depend on whether they issue new stock or borrow to fund their expansion. Explain your answer.
Related Book For
Managerial Economics and Organizational Architecture
ISBN: 978-0073523149
6th edition
Authors: James Brickley, Clifford W. Smith Jr., Jerold Zimmerman
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