24 Jul WHAT WOULD BE THE ESTIMATED COST OF EQUITY IF THE FIRM USED 60% DEBT?
target capital structure which currently consis Show more Stephens Electronics is considering a change in its target capital structure which currently consists of 25% debt and 75% equity. The CFO believes the firm should use more debt but the CEO is reluctant to increase the debt ratio. The risk-free rate rRF is 5.0% the market risk premium RPM is 6.0% and the firms tax rate is 40%. Currently the cost of equity rs is 11.5% as determined by the CAPM. W
target capital structure which currently consis Show more Stephens Electronics is considering a change in its target capital structure which currently consists of 25% debt and 75% equity. The CFO believes the firm should use more debt but the CEO is reluctant to increase the debt ratio. The risk-free rate rRF is 5.0% the market risk premium RPM is 6.0% and the firms tax rate is 40%. Currently the cost of equity rs is 11.5% as determined by the CAPM. What would be the estimated cost of equity if the firm used 60% debt? (Hint: You must first find the current beta and then the unlevered beta to solve the problem.) a. 10.95% b. 11.91% c. 12.94% d. 14.07% e. 15.29% Show less
(Hint: You must first find the current beta and
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