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

question 67

Multiple Choice

Dye Industries currently uses no debt,but its new CFO is considering changing the capital structure to 49.0% debt (w_d) by issuing bonds and using the proceeds to repurchase and retire some 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? Do not round your intermediate calculations. ​

• A) 2.59%
• B) 1.91%
• C) 2.92%
• D) 1.57%
• E) 2.25%

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Definitions:

Competitive Market Economy

An economic system where supply and demand determine the prices of goods and services, with minimal government intervention.

Economically Most Efficient

The state of achieving the highest level of output with the lowest possible input, optimizing the use of resources without waste.

Resource Prices

The cost of inputs used in the production of goods and services, such as labor, raw materials, and capital.

Market System

An economic system relying on market forces to allocate resources and to determine and regulate prices for goods and services.