Laramie Trucking's CEO is considering a change to the company's capital structure, which currently consists of 25%

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Laramie Trucking's CEO is considering a change to the company's capital structure, which currently consists of 25% debt and 75% equity. The CFO believes the firm should use more debt, but the CEO is reluctant to increase the debt ratio. The risk-free rate, rRF, is 5.0%, the market risk premium, RPM, is 6.0%, and the firm's tax rate is 40%. Currently, the cost of equity, rs, is 11.5% as determined by the CAPM. What would be the estimated cost of equity if the firm used 60% debt? (Hint: You must first find the current beta and then the unlevered beta to solve the problem.) a. 10.95% b. 11.91% c. 12.94% d. 14.07% e. 15.29%

Posted Date: May 21, 2024 02:05 AM

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Laramie Trucking's CEO is considering a change to the company's capital structure, which currently consists of 25%

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