FML Corp is debt and equity financed, and is considering changing its capital structure from...
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Finance
FML Corp is debt and equity financed, and is considering changing its capital structure from its current structure to the proposed capital structure. Relevant details are presented in the table below. Which of the following statements is true given the data in the table below the statements? (If you want to do math, remember, the weights must sum to 1. In other words, because this firm is debt and equity financed only, Wd + We = 1)
1. Shareholders should approve of the proposed capital structure. 2. Shareholders should be indifferent between the current and proposed capital structures. 3. Shareholders should be opposed to the proposed capital structure. 4. There is not enough information to answer this question.
Current
Proposed
Weight of Equity
90%
80%
Beta of equity
2
???
Cost of debt
3.1%
3.1%
Risk-free rate
3.1%
Tax rate
22%
Market Risk Premium
6%
Answer & Explanation
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