In a world that is not perfect but risk neutral assume that the firm has projects worth $100 in down state and $500 in the up-state. The cost of capital for projects is 25%. However, if you could finance it with 50-50 debt, the cash flow rights alone are enough to make the cost of capital lower than 20%. Managers are intransigent and do not want to switch to this new capital and cannot borrow more to take over the firm. What can you do?
Answer provided in approximately 100 words.
Cost of capital refers to the opportunity cost of funds to a business. As per Helium.com, "Weighted average cost of capital multiplies the amount of capital by the percent rate of cost for that capital as a proportional percentage of total ...