hard · Principles of Finance cost-of-capital-structure
A company has a current levered beta (β_L) of 1.40 and a debt-to-equity (D/E) ratio of 0.60. It plans to recapitalize to a D/E ratio of 1.00.
Using Hamada's Equation and assuming a marginal tax rate of 25%, what is the new estimated cost of equity if the risk-free rate is 4% and the equity risk premium is 6%?
- 10.00%
- 14.28%
- 16.15%
- 12.40%
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