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ABC Co. uses no debt, has a beta of 1.10, and its tax rate is 40%. However, the CFO is considering moving to a capital

ABC Co. uses no debt, has a beta of 1.10, and its tax rate is 40%. However, the CFO is considering moving to a capital structure with 30% debt and 70% equity. The risk-free rate is 5.0% and the market risk premium is 6.0%. By how much would the firms cost of equity change as a result of altering its capital structure?

2.05%

1.87%

1.70%

1.53%

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