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What would abc co estimated cost of equity

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Reference no: EM133011668

ABC Co. is trying to estimate its optimal capital structure. The company has a structure that consists of 25 percent debt and 75 percent equity, based on market values. The risk free rate is 5 percent and the market risk premium is 8 percent. Currently the company's cost of equity which is based on CAPM, is 12 percent and its tax rate is 40 percent.

Problem 1: What would ABC Co's estimated cost of equity if it were to change its capital structure to 40 percent debt and 60 percent equity?

Reference no: EM133011668

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