Blaine Kitchenware was a mid-sized producer of home appliances. You are provided with the following table to summarize Blaines financials in 2020. and bond ratings based on S&P. The risk-free rate at that time was 3.5%. The equity risk premium was 6%. The marginal corporate tax rate was 38%. CEO decided to change the capital structure and make the new debt level to 50% (i.e., D/(D+E) ratio). Assume that this change in capital structure only involves debt-to-equity swap and does not affect the total firm value.

What is the new cost of equity with 50% of debt ratio?

Revenue EBITDA EBIT Net income Market capitalization Market debt Equity beta Blaine Kitchenware FY 2020 ($ million) 32,251 7,860 6,946 5,630 61,000 45,000 0.87 A- Interest Coverage Rating > 8.5 AAA 6.5 - 8.5 AA 5.5-6.5 A+ 4.25 -5.5 A 3-4.25 2.5 - 3.0 BBB 2.25 -2.5 BB+ 2.0 -2.25 BB 1.75 -2.0 B+ 1.5 - 1.75 B 1.25 -1.5 B- 0.8-1.25 CCC 0.65 -0.8 CC 0.2 -0.65