Find company cost of equity

Assignment Help Finance Basics

Reference no: EM1357739

Jones Co. currently is 100% equity financed. The company is considering changing its capital structure. More specifically, Jones' CFO is considering a recapitalization plan in which the firm would issue long-term debt with a yield of 9% and use the proceeds to repurchase common stock. The recapitalization would not change the company's total assets nor would it affect the company's basic earning power, which is currently 15%. The CFO estimates that the recapitalization will reduce the company's WACC and increase its stock price. Which of the following is also likely to occur if the company goes ahead with the planned recapitalization?

The company's net income will increase, the company's earnings per share will decrease, the company's cost of equity will increase, the company's ROA will increase, or the company's ROE will decrease.

Reference no: EM1357739

Questions Cloud

Variables that affect a accomplishments : Explain what is information that needs to be prepared by employers and unions prior to contract negotiations and what sources can employers and unions utilize to obtain this prolific amount of information?

Explain why asynchronous i/o activity is a problem : Explain why asynchronous I/O activity is a problem with many memory protection schemes, including base/bounds and paging. Suggest a solution to the problem.

Observing physical inventory : Describe some considerations for observing physical inventory. Explain a fraud scheme that may be used for inventory.

How much extra surplus does the producer capture : Explain how much extra surplus does the producer capture when it engages in first-degree price discrimination instead of charging a single price.

Find company cost of equity : Jones Co. currently is 100 percent equity financed. The company is considering changing its capital structure. More specifically, Jones' CFO is considering a recapitalization plan in which the firm would issue long-term debt with a yield of 9 percent..

Ethical reasoning in business : Do you agree that this is a true statement? Might the answer to this question vary depending on the type of business? Explain.

How many protons hit the target : How many protons hit the target. How much energy is delivered to the target each second if the protons each have a kinetic energy of 30 MeV and lose all of their energy in the target.

Matrix that compares properties of four signal types : Discuss four different types of wireless technologies. Describe the characteristics and properties of each signal type, and how each can be used.

Explain what are the communication benefits of building : Explain What are the communication benefits of building a brand narrative in the way Stella Artois has?

User Account

All Pages