Purchase Solution

Cost of equity capital - capital structure change

Not what you're looking for?

Ask Custom Question

18. A firm has zero debt in its capital structure. Its overall cost of capital is 10%. The firm is considering a new capital structure with 60% debt. The interest rate on the debt would be 8%. Assuming there are no taxes or other imperfections, its cost of equity capital with the new capital structure would be ______ .

9%
10%
13%
14%
None of the above.

Purchase this Solution
Solution Summary

The solution explains how to calculate the cost of equity after a change in capital structure

Purchase this Solution
Free BrainMass Quizzes
Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

View More Free Quizzes
Related BrainMass Solutions

  • What will be the cost of equity if capital structure changed?

    What would be the Company's estimated cost of equity if it were to change its capital structure to 50 percent debt and 50 percent equity?

  • Calculate WACC in Excel

    structure would need to change to reduce cost of capital Capital structure comprises debt and equity.

  • Weighted average cost of capital for each potential structure

    They are considering the following debt/equity capital structures. 1) Compute Krona's present weighted average cost of capital. 2) Compute the weighted average cost of capital for each potential structure. Assume a 40% corporate tax rate.

  • Optimal capital structure

    In addition to calculating the WACC, the CEO wants you to explain how the capital structure would need to change if the firm wanted to reduce its cost of capital.

  • capital structure decisions

    The first approach to capital structure decisions is the net income approach according to which the cost of debt and the cost of equity do not change with a change in leverage ratio.

  • Ford Company Capital Budgeting Project Mini-case

    change the weighted average cost of capital at some future point.

  • Estimated cost of equity

    Step 4:Find the firm's new cost of equity given its new beta and the CAPM: rs=rRF+RPM X beta rs=6% +5%(1.6696) rs=14.35% The solution explains how to calculate the cost of equity given a change in capital structure.

  • Determining Optimal Capital Structure

    new capital structure, Levered beta=1.01*[1+((1-45%)*(30%)/(70%))]=1.84 Therefore, Cost of equity=3.5%+7.5%*1.84=17.3% And, WACC=60%*12%*(1-45%)+40%*17.3%=10.9% Optimal capital structure is the adjustment of the weight of debt and equity to

  • Capital structure, debet verus equity

    246377 Capital structure, debet verus equity Should a company have more debt or more equity in its capital structure? Explain your answer. What are some limitations of utilizing debt versus equity in the capital structure?

View More Related Solutions