Galt Energy AB is a highly levered company with $25$ million shares, trading at SEK $15/$share and SEK $750$ million in debt $($in market and book value terms$)$ outstanding. The pre$-$tax cost of debt for the company is $10\%,$ the marginal tax rate is $40\%$ and the levered beta for the company is $2\mathrm{.}99.$ The risk free rate is $3\%$ and the market risk premium is $5\%.$

A bondholder in the firm is willing to accept $25$ million newly issued shares in the company in exchange for SEK $250$ million in debt $($which will be retired$).$ This transaction will raise the companys bond rating to BBB and lower their pre$-$tax cost of debt to $7\mathrm{.}5\%.$ Estimate the new cost of capital, if you go through with the swap.

 

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