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What will be the required rate of return on ccg equity

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Reference no: EM133158258

Question - The construction company CCG is fully equity financed. A financial institution has just granted him a debt of $500,000 at an interest rate of 4%. The objective of this debt is to buy back 25,000 outstanding shares (out of a total of 80,000 shares).

a) Assuming no taxes, calculate the value of the CCG firm after the stock buyback.

b) The company has a return on assets of 14%. In the absence of taxes, what will be the required rate of return on CCG's equity?

Reference no: EM133158258

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