The firms cost of equity is 11 which is determined by capm

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Burlington Inc. is trying to establish its optimal capital structure. Its current capital structure consists of 30% debt and 70% equity; however, the CEO believes the firm should use more debt. The risk-free rate, r_RF, is 4%, the market risk premium, RP_M, is 5%, and the firm's tax rate is 40%. Currently, the firm's cost of equity is 11%, which is determined by the CAPM. What would be the firm's estimated cost of equity if it changed its capital structure to 40% debt and 60% equity?

Reference no: EM13477098

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