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1.) Archimedes Levers is financed by a mixture of debt and equity. You have the

ID: 2644981 • Letter: 1

Question

1.)

Archimedes Levers is financed by a mixture of debt and equity. You have the following information about its cost of capital:

   

  

Suppose now that Archimedes repurchases debt and issues equity so that D/V = 0.45. The reduced borrowing causes rD to fall to 9%. Calculate the rE, rA, ?E, ?D, and ?A. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Find:

Archimedes Levers is financed by a mixture of debt and equity. You have the following information about its cost of capital:

Explanation / Answer

SOLUTION:

1.

rE = rf + ?E ( rm + rf )

rE = 0.08 + 2.4 ( 0.16

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