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Optimal capital structure

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Toy Corp. is analyzing its optimal capital structure. Currently, Toy's capital structure includes 10% debt and the company is planning to triple (3x) its debt capitalization.  Assume that the current risk-free rate is 3.0% and the equity risk premium is 5.0%.  If the company's cost of equity, which is based on the CAPM, is 12.0% and its tax rate is 40.00%, what would Toy's estimated cost of equity (rounded) be if the company were to change its capital structure as indicated above?  The answer is 13.6%, will you show the work?

Reference no: EM131318251

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