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What would be abc co estimated cost of equity

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Problem 1: ABC Co. is trying to estimate its optimal capital structure. The company has a capital structure that consists of 25 percent debt and 75 percent equity, based on market values. The risk-free rate is 5 percent and the market risk premium is 8 percent. Currently the company's cost of equity, which is based on the CAPM, is 12 percent and its tax rate is 40 percent. What would be ABC Co's estimated cost of equity if it were to change its capital structure 40 percent debt and 60 percent equity?

Reference no: EM133011713

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