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What would be lucky cement estimated cost of equity

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Reference no: EM132713248

Lucky Cement is trying to establish its optimal capital structure. Its current capital structure consists of 20% debt and 80% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, rRF, is 5%; the market risk premium, RPM, is 6%; and the firm's tax rate is 40%. Currently, Lucky Cement has beta of 1.5.

Problem 1: What would be Lucky Cement's estimated cost of equity if it changed its capital structure to 40% debt and 60% equity? Should the company opt new capital structure? (decide based on the cost of equity computations)?

Reference no: EM132713248

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