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Author Question: Reynolds Resorts is currently 100% equity financed. The CFO is considering a recapitalization plan ... (Read 45 times)

kaitlynndavis

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Reynolds Resorts is currently 100% equity financed. The CFO is considering a recapitalization plan under which the firm would issue long-term debt with a yield of 8% and use the proceeds to repurchase common stock. The recapitalization would not change the company’s total assets, nor would it affect the firm’s basic earning power, which is currently 18%. The CFO believes that this recapitalization would reduce the WACC and increase the stock price. What would also be likely to occur if the company goes ahead with the recapitalization plan?

The company’s cost of equity would increase.


The company’s earnings per share would decline.


The company’s net income would increase.


The company’s ROE would decline.



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Marked as best answer by kaitlynndavis on Aug 7, 2023

Karla347

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kaitlynndavis

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Reply 2 on: Aug 7, 2023
Excellent


Missbam101

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Reply 3 on: Yesterday
:D TYSM

 

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