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What would be the new equity cost of capital

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The firm you currently run is currently 80.0% in equity and 20.0% in debt. Its current WACC is 12.0%, marginal corporate tax rate is 26.0%, the yield to maturity on its outstanding bonds 8.2% and is expected to remain constant, the risk-free rate is 3.0%, and the expected return on the market portfolio is 9.5%. You are thinking of strategically positioning itself for an acquisition and has the capacity to increase its level of debt to equity ratio to 50% equity and 50% debt if needed.

If the firm changed its capital structure as proposed, what would be the new equity cost of capital?

Reference no: EM132509210

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