Question

A firm has zero debt in its capital structure and has an overall cost of capital of 10 percent. The firm is considering a new capital structure with 60 percent debt at an interest rate of 8 percent. Assuming there are no taxes or other imperfections, what would be the cost of equity with the new capital structure

Answer 1

13%

Step-by-step explanation:

rE= 10 + (60/40)(10 - 8) = 10 + 3 = 13