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Calculate question using the inputs provided

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A company has a cost of capital (WACC) equal to 10%. The cost of equity is 12%, the cost of debt is 6.5%, the tax rate is 20%, and debt represents 30% of the value of the firm (D/V = 30%).

Suppose the company reduces D/V to 20% by issuing new equity and paying down some of its debt. Suppose also that the the M&M (Modigliani and Miller) result is correct. If the cost of debt is still 6.5%, then the cost of equity will be __________.

WACC

10%

COE

12%

COD

6.50%

Tax Rate

20%

Debt Representation

30%

New Debt Rep

20%

New COD

6.50%

New COE

?

Please show what the excel formula would be to calculate this question using the inputs provided.

Reference no: EM133118288

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