Dyson Inc.currently finances with 20.0% debt (i.e. ,w_d = 20%) ,but its new CFO is considering changing the capital structure so w_d = 36.0% by issuing additional bonds and using the proceeds to repurchase and retire 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? Do not round your intermediate calculations.(Hint: You must unlever the current beta and then use the unlevered beta to solve the problem. ) $\begin{array}{lrlr}\text { Risk-free rate, } \mathrm{rFF}_{\mathrm{R}} & 5.00 \% & \text { Tax rate, } \mathrm{T} & 40 \% \\\text { Market risk prem, RPM } & 6.00 \% & \text { Current wd } & 20 \% \\\text { Current beta, bL1 } & 1.65 & \text { Target wd } & 36.0 \%\end{array}$
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Question

Dyson Inc.currently finances with 20.0% debt (i.e. ,w_d = 20%) ,but its new CFO is considering changing the capital structure so w_d = 36.0% by issuing additional bonds and using the proceeds to repurchase and retire 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? Do not round your intermediate calculations.(Hint: You must unlever the current beta and then use the unlevered beta to solve the problem. )

\begin{array}{lrlr}\text { Risk-free rate, } \mathrm{rFF}_{\mathrm{R}} & 5.00 \% & \text { Tax rate, } \mathrm{T} & 40 \% \\\text { Market risk prem, RPM } & 6.00 \% & \text { Current wd } & 20 \% \\\text { Current beta, bL1 } & 1.65 & \text { Target wd } & 36.0 \%\end{array}

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Quizplus · Accepted Answer

The Answer of Dyson Inc.currently finances with 20.0% debt (i.e. ,w_d = 20%),but its new CFO is considering changing the capital structure so w_d = 36.0% by issuing additional bonds and using the proceeds to repurchase and retire 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? Do not round your intermediate calculations.(Hint: You must unlever the current beta and then use the unlevered beta to solve the problem. ) $\begin{array}{lrlr} \text { Risk-free rate, } \mathrm{rFF}_{\mathrm{R}} & 5.00 \% & \text { Tax rate, } \mathrm{T} & 40 \% \ \text { Market risk prem, RPM } & 6.00 \% & \text { Current wd } & 20 \% \ \text { Current beta, bL1 } & 1.65 & \text { Target wd } & 36.0 \% \end{array}$ ? A) 1.61% B) 1.66% C) 1.24% D) 1.68% E) 1.69%

Dyson IncCurrently Finances with 20 ? A) 1

Dyson IncCurrently Finances with 20 ?
A) 1