Cost of equity capital with the new capital structure

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Reference no: EM13768859

A firm has 0 debts in its capital structure. Its overall cost of capital is 9%. The firm is considering a new capital structure with 40% debt. The interest rate on the debt would be 4%. Assuming that the corporate tax rate is 34%, what would be its cost of equity capital with the new capital structure?

a. 11.2%

b. 11.0%

c. 10.32%

d. 13.95%

Please provide the solution

Reference no: EM13768859

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