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Infosys is trying to establish its optimal capital structure. The companys current capital structure consists of 25% debt and 75% equity; however, the treasurer believes
Infosys is trying to establish its optimal capital structure. The companys current capital structure consists of 25% debt and 75% equity; however, the treasurer believes that the firm should use more debt. Currently, the companys cost of equity capital is 8%, which is determined by CAPM.
What would be the companys estimated cost of equity capital if they change their capital structure to 50% debt? Risk-free rate is 3%, market index returns 11%, and the companys tax rate is 25%.
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