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What are the new ark wacc and new cost of equity

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Reference no: EM132985731

ARK company has $720 million in common stock outstanding. Its cost of equity is 18%. Moreover, ARK has $360 million in 9% coupon rate bonds outstanding. The bond is currently sold at par. There are no taxes in the country in which ARK company operates.

Problem i. Calculate the weighted average cost of capital (WACC) of ARK? (

Problem ii. ARK has decided to issue $180 million in common stock and use the proceeds to buy back $180 million in its bond. According to the Modigliani & Miller (M&M) propositions, what are the new ARK's WACC and new cost of equity?

Reference no: EM132985731

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