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Investment / Financial Markets Old Exam MFE Forum

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  #1  
Old 08-06-2019, 11:51 PM
lilj0825 lilj0825 is offline
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Default Actex Chapter 7.1 Question 9

Can someone help me with this question?

The question I have is part c. The answer says it must be 20%, which is the cost capital before the share price, and 20% is the answer for part b. I did not understand this part.

Moreover, Example 7.1.6 part c is similar. I did not understand it either.

If someone can help me with these two questions, that will be a real help!
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Old 08-07-2019, 09:42 AM
Alpha12 Alpha12 is offline
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Hi. They meant to say 15% for 7.1 question 9 c. That is unless there's some nuance between saying the weighted average cost of capitol and the average cost of capitol. The way they describe in the answer leads me to believe you've discovered a typo.

Last edited by Alpha12; 08-07-2019 at 09:46 AM..
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Old 08-14-2019, 12:20 PM
lilj0825 lilj0825 is offline
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Thank you for answering my question. I guess the example 7.1.6 works the same. However, if it is asking the cost of capital after the share repurchase, shouldn't it be 20% instead of 15%? Could you please explain? I was not able to understand it.
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Old 08-14-2019, 01:28 PM
Alpha12 Alpha12 is offline
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You're welcome. The average cost of capitol doesn't change with a capitol restructure (without taxes) under mm. It was 15% before and will be 15% after, though the equity cost of capitol changed to 20%, the wacc remains the same. Idk though, I may have failed the exam, but that's my understanding of it.
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Old 08-28-2019, 01:48 PM
lilj0825 lilj0825 is offline
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Ok. Thank you very much for explaining the question. I got a better picture now.
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