F3 Exam Dumps | On 1 January 20X1, a company had: * Cost of equity of 10 0%. * Cost of debt of 5.0% * Debt of $100Mmilion

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Question 182/182

On 1 January 20X1, a company had:
* Cost of equity of 10 0%.
* Cost of debt of 5.0%
* Debt of $100Mmilion
* 100 million $1 shares trading at $4.00 each.
On 1 February 20X1:
* The company's share police fell to $3.00.
* Debt and the cost of debt remained unchanged
The company does not pay tax.
Under Modigliani and Miller's theory without lax. what is the best estimate of the movement in the cost of equity as a result of the fall in ne share price?

A. It will fall to 9.3%.

B. It will rise to 11.2%.

C. It will stay the same at 10.0%.

D. It will rise to 10.3%.

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Question 182/182

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