The common stock and debt of the listed French clothing company Fille Provocatrice are valued at EUR500 million and EUR300 million respectively. Shareholders currently require a 9% return and the cost of debt is 3%. Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes. If Fille Provocatrice issues an additional USD 100 million of debt and uses this money to buy back shares, what happens to the cost of equity of the stock? The new cost of equity of the stock comes closest to 9.0% 9.5% 10.0% 10.5% D 11.0%

The common stock and debt of the listed French clothing company Fille Provocatrice are valued at EUR500 million and EUR300 million respectively. Shareholders currently require a 9% return and the cost of debt is 3%. Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes. If Fille Provocatrice issues an additional USD 100 million of debt and uses this money to buy back shares, what happens to the cost of equity of the stock? The new cost of equity of the stock comes closest to 9.0% 9.5% 10.0% 10.5% D 11.0%

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter15: Capital Structure Decisions

Section: Chapter Questions

Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...

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