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Pham Pharmaceuticals currently has 73.0% in equity and 27.0% in debt. Pham Pharmaceuticals is considering changing its capital structure so that the new debt-to-equity ratio
Pham Pharmaceuticals currently has 73.0% in equity and 27.0% in debt. Pham Pharmaceuticals is considering changing its capital structure so that the new debt-to-equity ratio is 0.75. Currently, the firm has a WACC of 15.5% and the yield to maturity of its outstanding is 8.1%. The yield on the firm's bonds is expected to remain constant after the restructure. The riskfree rate is 3.0% and the expected return on the market portfolio is 9.0%. The marginal corporate tax rate is 38.0%. 1. What is the current equity cost of capital? % (Give answer as % to 2 decimal places) 2. If the firm changes its capital structure as proposed, what would be the new equity cost of capital? % (Give answer as % to 2 decimal places) 3. What is the new Weighted Average Cost of Capital? % (Give answer as % to 2 decimal places)
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