Determining cost of equity as well as weighted average cost

Reference no: EM1313241

Determining cost of equity as well as weighted average cost of capital

Suppose a firm has no debt and $100,000,000 in equity capital. It has a tax rate of 40%, a required rate of return (by investors) of 9.5% and a β = 1.23. The firm can issue $50,000,000 of debt at a rate of 7.2%. The risk free rate is 2% and the expected market return is 8.5%. If the firm floats this debt, what would be the impact on the firm's β, its cost of equity capital and its weighted average cost of capital? What would be the impact on its feasible project set (be quantitative)?

Reference no: EM1313241

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