After recapitalization, the cost of equity is 12.59%.
What is the wacc?
- The return that investors and lenders anticipate receiving in exchange for their capital investments in a firm is shown by the weighted average cost of capital (WACC).
- A company's WACC, for instance, is 15% if shareholders want a 20% return and lenders demand a 10% return.
What are the implications for the firm's capital structure decision?
- This method asserts that the choice of the capital structure affects the firm's worth.
- The weighted average cost of capital (WACC) will decrease as financial leverage rises, but the firm's value and the market price of common shares will rise.
What effects does capital structure theory have?
- The choice of the company's capital structure primarily affects how debt and equity are used to finance the business.
- The cost of capital is decreased by an effective mix of capital. Increased net economic returns lead to higher company value, which is eventually achieved through lowering the cost of capital.
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