Dye Industries currently uses no debt,but its new CFO is considering changing the capital structure to 49.0% debt (w_d) by issuing bonds and using the proceeds to repurchase and retire some common shares so the percentage of common equity in the capital structure (w_c) = 1 - w_d.Given the data shown below,by how much would this recapitalization change the firm's cost of equity,i.e. ,what is r_L - r_U? Do not round your intermediate calculations. $\begin{array}{lrlr}\text { Risk-free rate, } \mathrm{rFF} & 6.00 \% & \text { Tax rate, } \mathrm{T} & 40 \% \\\text { Market risk prem, RPM } & 3.00 \% & \text { Current } \mathrm{w}_{\mathrm{d}} & 0 \% \\\text { Current beta, bu } & 1.30 & \text { Target } \mathrm{w}_{\mathrm{d}} & 49.0 \%\end{array}$
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Question

Dye Industries currently uses no debt,but its new CFO is considering changing the capital structure to 49.0% debt (w_d) by issuing bonds and using the proceeds to repurchase and retire some common shares so the percentage of common equity in the capital structure (w_c) = 1 - w_d.Given the data shown below,by how much would this recapitalization change the firm's cost of equity,i.e. ,what is r_L - r_U? Do not round your intermediate calculations.

\begin{array}{lrlr}\text { Risk-free rate, } \mathrm{rFF} & 6.00 \% & \text { Tax rate, } \mathrm{T} & 40 \% \\\text { Market risk prem, RPM } & 3.00 \% & \text { Current } \mathrm{w}_{\mathrm{d}} & 0 \% \\\text { Current beta, bu } & 1.30 & \text { Target } \mathrm{w}_{\mathrm{d}} & 49.0 \%\end{array}

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The Answer of Dye Industries currently uses no debt,but its new CFO is considering changing the capital structure to 49.0% debt (w_d)by issuing bonds and using the proceeds to repurchase and retire some common shares so the percentage of common equity in the capital structure (w_c)= 1 - w_d.Given the data shown below,by how much would this recapitalization change the firm's cost of equity,i.e. ,what is r_L - r_U? Do not round your intermediate calculations. $\begin{array}{lrlr} \text { Risk-free rate, } \mathrm{rFF} & 6.00 \% & \text { Tax rate, } \mathrm{T} & 40 \% \ \text { Market risk prem, RPM } & 3.00 \% & \text { Current } \mathrm{w}_{\mathrm{d}} & 0 \% \ \text { Current beta, bu } & 1.30 & \text { Target } \mathrm{w}_{\mathrm{d}} & 49.0 \% \end{array}$ ? A) 2.59% B) 1.91% C) 2.92% D) 1.57% E) 2.25%

Dye Industries Currently Uses No Debt,but Its New CFO Is