Considering moving to new capital structure

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Reference no: EM131070685

Orlando Inc. currently has zero debt. It has EBIT of $60,000 and is a zero growth company. It's current cost of equity is 10%, and its tax rate is 40%. The company has 10,000 shares of common stock at a current price of $36.00. Orlando Inc. is considering moving to a new capital structure that is 25% debt and 75% equity. The debt would have an interest rate of 6%. The added leverage would cause the required return on equity to rise to 11%.

Reference no: EM131070685

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