(b) Assuming that the cost of equity and cost of debt do not alter, estimate the effect of

Question

(b) Assuming that the cost of equity and cost of debt do not alter, estimate the effect of the share repurchase on the company’s cost of capital and value. (5 marks)

Answer 1

正确答案：

(b) Estimated new cost of capital:
If equity is repurchased such that the gearing becomes 50% equity, 50% debt, the new estimated weighted average cost of capital is: