Dye Industries Currently Uses No Debt, but Its New CFO

question 46

Multiple Choice

Dye Industries currently uses no debt, but its new CFO is considering changing the capital structure to 40.0% debt (wd) by issuing bonds and using the proceeds to repurchase and retire common shares so the percentage of common equity in the capital structure (wc) = 1 - wd. Given the data shown below, by how much would this recapitalization change the firm's cost of equity, i.e., what is rL - rU?

• A) 1.66%
• B) 1.84%
• C) 2.02%
• D) 2.23%
• E) 2.45%

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Definitions:

White-Collar Deviance

Non-violent, illegal or unethical acts committed by individuals in professional or business roles, typically for personal or corporate gain.

Social Controls

The mechanisms, strategies, and techniques that societies use to encourage conformity to norms and discourage deviant behavior.

Greater Opportunity

The increased chance or potential to achieve success, access resources, or advance in one's personal or professional life.