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%

---

Definitions:

Principled Negotiation

Principled negotiation is a negotiation strategy that emphasizes mutual interests, fair standards, and objective criteria in the negotiation process, aiming for a win-win outcome for all parties involved.

Objective Standard

A criterion that is not influenced by personal feelings or opinions and can be independently verified.

Overconfidence

A cognitive bias wherein an individual's belief in their own abilities or the accuracy of their knowledge exceeds the reality.

Negotiation Process

A series of interactions or discussions aimed at reaching an agreement or resolving differences between parties.