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Assume that H&M changes its capital structure so that its market value weight of debt to capital increases to 45%, and its after-tax interest rate
Assume that H&M changes its capital structure so that its market value weight of debt to capital increases to 45%, and its after-tax interest rate on debt at this new leverage level is 4%. H&M's asset beta is estimated to be 0.41. Assume that the equity market risk premium is 7% and risk- free rate is 4.8%. What will be the cost of equity at the new debt level? What will be the weighted average cost of equity capital?
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