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

question 29

Multiple Choice

Dye Industries currently uses no debt,but its new CFO is considering changing the capital structure to 40.0% debt (w_d) by issuing 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,i.e.,what is r_L − r_U?

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

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Definitions:

Histogram

A graphical representation of the distribution of numerical data, often showing the frequency of data intervals.

Interval Data

A type of numerical data where the order and the exact differences between the values matter, but there is no true zero point.

Classes

Groupings or categories into which data or objects are organized based on common characteristics or attributes.

Histogram

A graphical representation of data using bars of different heights to show the distribution of values in a dataset.