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Interwood Furniture initially had a capital structure consisting solely of equity. The risk free rate is 5% whereas the expected return on the market is
Interwood Furniture initially had a capital structure consisting solely of equity. The risk free rate is 5% whereas the expected return on the market is 20%. The beta of the firm is 0.9. Gridline then changed its capital structure to consist of 30% debt. The corporate tax rate is 20%. What is the firms weighted average cost of capital with the new capital structure?
A. We would need to know the expected return on debt to calculate the firms weighted average cost of capital | |
B. 20% | |
C. 18.5% | |
D. 17.39% |
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