What is the equity holders rate of return

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Reference no: EM132791501

At t1, the firm needs to finance another $1000 to do the new investment. It is either by all equity ($1000 more equity) or by all debt ($1000 debt with interest rate 10%). So, the CFO have two options to finance the new budget: the first option is by only equity and the second option is by both debts and equity.

problem 1: What is the cost of capital if the CFO decides to finance through the first option?

problem 2: Consider the second financing option. What is the weighted average cost of capital of the firm?

problem 3: What are the weights of debts and equities if the CFO finances by the second option?

problem 4: What is the equity holders' rate of return?

Reference no: EM132791501

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