XYZ Corp is currently has a debt-to-enterprise value ratio of 40%. Its current cost of equity is

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XYZ Corp is currently has a debt-to-enterprise value ratio of 40%. Its current cost of equity is 15% and its current cost of debt is 5%. The firm wants to permanently change its financing policy to target a debt-to-enterprise value ratio of 16%. The cost of debt associated with this new financing policy will also be 5%.

Assuming perfect markets, what will XYZ's cost of equity be after it implements this new financing policy?

Related Book For answer-question

Financial Reporting Financial Statement Analysis and Valuation a strategic perspective

ISBN: 978-1337614689

9th edition

Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

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Posted Date: Jul 12, 2023 11:40 PM

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XYZ Corp is currently has a debt-to-enterprise value ratio of 40%. Its current cost of equity is

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Expert Answer:

We can use the weighted average cost of capital WACC formula to calculate the new cost of equity for ... View the full answer

Financial Reporting Financial Statement Analysis and Valuation a strategic perspective

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