Establish its optimal capital structure

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Reference no: EM131188334

A company is trying to establish its optimal capital structure. Its current capital structure consists of 66.42 percent debt and 100-66.42 percent equity; however, the CEO believes that the firm should use more debt. The risk-free rate is 3.78 percent, and the firm’s tax rate is 36.68 percent. Currently, the firm’s cost of equity is 9.88 percent, which is determined by the CAPM. What would be the firm’s estimated cost of equity if it changed its capital structure to 61.49 percent debt and (100-61.49) percent equity?

Reference no: EM131188334

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