If wentworth changes its capital structure to 30 percent

Reference no: EM13595547

Wentworth Industries is 100 percent equity financed. It's current beta is .09. The excepted market rate of return is 14 percent and the risk-free rate is 8 percent.

a) Calculate Wentworths cost of equity.

b) If Wentworth changes its capital structure to 30 percent debt, it estimates that its beta will increase to 1.1. The after-tax cost of debt will be 7 percent. Should Wentworth make the capital structure change?

Reference no: EM13595547

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