If a firm repurchase their own shares with debt. How will it effect cost of capital?
Equity: 5 mill, cost of equity: 20%
Debt:1 mill (use to repurchase stock) Cost of debt: 10 %
What is overall cost of capital?

Debt and required return?
It's a all-equity firm. The firm's equity has a market
Value of $5 million. The cost of equity is currently 20%.
$1 million in debt and to use the proceeds to repurchase stock. No taxes
The cost of debt is 10%.
After the repurchase, what will be the required return on equity?

I Hope someone can help..

Jørgensen & Co is currently an all-equity firm, with a cost of capital of 15%. The
Company has recently announced a $50 million are & D project that will reduce annual
Costs from $300 million to $285 million in perpetuity (starting next year). The firm
Can finance the project either through retained earnings or with a new bond issue. The
Interest rate for comparable corporate loans is 8%. After the announcement Jørgensen
Has 10 million shares of stock outstanding at $30 a share. Furthermore, the company
Has sufficient earnings to utilize the corporate tax shield if the project is debt
Financed. The relevant marginal tax rate is 30%. (Disregard investor tax).
What was the stock price before the announcement?
(a) The stock price before the announcement was $25.
(b) The stock price before the announcement was $25.
(c) The stock price before the announcement was $20.
(d) The stock price before the announcement was $23.5.

Please refer to this announcement


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I have do that in this way:
Required rate =0,20+ 1/5*(0,10)
= 22%

But the right answer is 22,5%

I have solved that this way:

new equity after Repurchased shares: 5-1= 4
wacc= 4/5*20%+1/5*10%= 18 %
re=18%+1/4(18%-10%)= 20% The overall cost of capital...

Its right calculation method?