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Jupiter Co (Dec 2008)

Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › Jupiter Co (Dec 2008)

  • This topic has 0 replies, 1 voice, and was last updated 5 years ago by kevinchin.
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  • August 4, 2019 at 11:53 am #526138
    kevinchin
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    • Topics: 24
    • Replies: 8
    • ☆

    Can I use M&M formula to calculate the revised cost of equity (ke) for part B?

    As per my understanding, M&M formula can be used when gearing change. In this question, Rosa is considering a scheme to repay existing debt of $800m and issue new debt of $2,400m which will result in an increased gearing of Jupiter. Ke increases as gearing increases which match the M&M model (with tax).

    Please correct me if I am wrong. Thank you.

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