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One of your new employees notes that your debt has a lower cost of capital (6%) than your equity (15%). So, he suggests that the
One of your new employees notes that your debt has a lower cost of capital
(6%)
than your equity
(15%).
So, he suggests that the firm swap its capital structure from
29%
debt and
71%
equity to
71%
debt and
29%
equity instead. He estimates that after the swap, your cost of equity would be
21%.
a. What would be your new cost of debt? Make your calculations based on your firm's pre-tax WACC.
b. Have you lowered your overall cost of capital?
Question content area bottom
Part 1
a. The new cost of debt is
enter your response here%.
(Round to two decimal places.)
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