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Determining the new weighted average cost of capital

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Reference no: EM132501008

Happy Corp. is all-equity-financed. The expected rate of return on the company's shares is 15%. If the company recapitalizes by issuing debt and targets a 30% debt-to-total capital (D/((D+E)=.30), what is Happy Corp.'s new weighted average cost of capital? Assume the borrowing rate is 8% and the tax rate is 40%.

Note: Number expressed as % (ie 10% =10). Round to nearest 1 decimal.

Reference no: EM132501008

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