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Wentworth industries is 100 percent equity financed its

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Wentworth Industries is 100 percent equity financed. Its current beta is 0.9. The expected market rate of return is 14 percent and the risk-free rate is 8 percent.

a. Calculate Wentworth's cost of equity.

b. If Wentworth changes its capital structure to 30 percent debt, it estimates that its beta will increase to 1.1. The after-tax cost of debt will be 7 percent. Should Wentworth make the capital structure change?

Reference no: EM13566310

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