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Crown Inc. is a pure equity firm. Firm decides to recapitalizeto take advantage of tax shield.Firm's marginal tax rate is 40%.After a substantial borrowing, firm's
Crown Inc. is a pure equity firm. Firm decides to recapitalizeto take advantage of tax shield.Firm's marginal tax rate is 40%.After a substantial borrowing, firm's cost of equity goes up to 10%.Assuming that firm'sasset beta is 0.9, risk free rate is 2%, and EMRP is 5%,firm'spost recapitalizationdebt to capital ratio is closest to:
A) 42%
B)129%
C) 72%
D) 56%
E) None
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