What will the firm cost of equity be after refinancing

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The all equity firm’s current cost of equity is 9.12 %. Market risk premium is 4% and risk free rate is 6%. The firm’s tax rate is 40%. The firm is considering a recapitalization where they would sell bonds and use the money from the bond sale to repurchase stock. After recapitalization, the book value of equity will be $50 million. The debt will be $40 million, paying interest at a rate of 10%. What will the firm’s cost of equity be after refinancing?

Reference no: EM131180641

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