ABCD Inc has debt outstanding of UDS 1.18 billion and 45.99 million shares outstanding, trading at USD 9 per share. The debt is rated B- . and has a beta of 0.4 The YTM of the debt is 18%, The stock has a beta of 2.20. ABCD is planning to pay down debt and reduce its debt to equity ratio (D/E) to 50% which should raise  its debt rating to A and lower the pre- tax rate to 7.25%. The beta of debt after the recapitalization will be close to zero. The tax rate for the firm is 40%. The teasury bond rate is 7%. The equity risk premmium is 5.5%.

What will be its cost of capital after the capital structure adjustment?

Answer rating: 100% (QA)

Cost of capital after the capital structure adjustment 1418 Explanation Calculate the cost ... View the full answer