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Determine the cost of equity

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Reference no: EM133127593

Question - A Company has a cost of capital (WACC) equal to 7.8%. The cost of equity is 9%, the cost of debt is 4%, the tax rate is 30%, and debt represents 20% of the value of the firm (D/V = 20%).

Suppose the company increases D/V to 30%, by issuing debt and repurchasing stock. Suppose also that the M&M (Modigliani and Miller) result is correct. If the cost of debt is still 4%, then determine the cost of equity?

Reference no: EM133127593

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