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  1. business
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  3. dyson inc. currently finances with 20.0% debt (i.e

Dyson Inc. currently finances with 20.0% debt (i.e., wd = 20%), but its new CFO...

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Accounting

Dyson Inc. currently finances with 20.0% debt (i.e., wd = 20%), but its new CFO is considering changing the capital structure to wd = 50.5% by issuing additional bonds and using the proceeds to repurchase and retire common shares so the percentage of common equity in the capital structure wc = 1 wd declines. 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.)

Risk-free rate, rRF 5.00% Tax rate, T 25%
Market risk prem., RPM 3.00% Current wd 20.0%
Current beta, bL1 1.30 Target wd 50.5%
a. 5.06 p.p.
b. 0.62 p.p.
c. 1.90 p.p.
d. 2.98 p.p.
e. 3.16 p.p.

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