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Cost of capital after the recapitalization

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Reference no: EM132668442

Wyatt Fracking AB is a publicly traded company that is considering a restructuring plan. The company currently has 200 million shares trading at SEK 13/share and total debt outstanding of SEK 600 million. The firm currently has a (levered) beta of 2.16, the risk free rate is 1.9%, the market risk premium is 6% and the marginal tax rate is 40%.

The firm is planning to double its SEK debt and use the proceeds from the new debt to pay dividends & buy back stock. If it's bond rating will drop to BBB with a default spread of 2.5% over the risk free rate.

Question: Estimate the cost of capital after the recapitalization?

Reference no: EM132668442

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