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Estimate the cost of capital for the ?rm

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Reference no: EM133121124

XYZ Inc. is an all-equity funded publicly traded ?rm, with 100 million shares outstanding, trading at $10 per share. Its current cost of capital is 7.5%. The company plans to borrow $800 million at an interest rate of 7.5% and buy back shares. Assume that the risk-free rate is 3%, the market risk premium is 6%, and the marginal tax rate for all companies is 40%. Estimate the cost of capital for the ?rm after the share buyback.

Reference no: EM133121124

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