Cost of capital and increase firm value

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A company is considering making a change to its capital structure to reduce its cost of capital and increase firm value. Right now, the company has a capital structure that consists of 20% debt and 80% equity, based on market values. The risk-free rate is 6% and the market risk premium, rM -rRF, is 5%. Currently the company's cost of equity, which is based on the CAPM, is 12% and its tax rate is 40%. What would be Cartwright's estimated cost of equity if it were to change its capital structure to 50% debt and 50% equity?

Reference no: EM131558628

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