Statements about the impact on the cost of common equity

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Westwood Ltd.'s capital structure consists of 500,000 common shares, which have a current market price of $25 per share. The underwriter has informed management that the firm's weighted average cost of capital (WACC) could be significantly reduced if it issues $2.5 million of long-term debt and uses the proceeds to purchase and then retire 100,000 common shares. If Westwood undertakes this proposal to alter its capital structure, which of the following statements about the impact on the cost of common equity is true?

Reference no: EM132652722

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