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HH Industries has 50 million shares that are currently trading for $4 per share and $200...

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Finance

HH Industries has 50 million shares that are currently tradingfor $4 per share and $200 million worth of debt. The debt is riskfree and has and interest rate of 5%, and the expected return of HHstock is 11%. Suppose a strike causes the price of HH stock to fall25% to $3 per share. The value of the risk free debt is unchanged.Assuming there are no taxes and the risk of HH's assets isunchanged, what happens to HH's equity cost of capital?

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HH Industries has 50 million shares that are currently tradingfor $4 per share and $200 million worth of debt. The debt is riskfree and has and interest rate of 5%, and the expected return of HHstock is 11%. Suppose a strike causes the price of HH stock to fall25% to $3 per share. The value of the risk free debt is unchanged.Assuming there are no taxes and the risk of HH's assets isunchanged, what happens to HH's equity cost of capital?

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