Question: Assume that H&M changes its capital structure so that its market valueweight of debt to capital increases to 45%, and its after-tax interest rateon debt

Assume that H&M changes its capital structure so that its market valueweight of debt to capital increases to 45%, and its after-tax interest rateon debt at this new leverage level is 4%. H&M's asset beta is estimatedto be 0.41. Assume that the equity market risk premium is 7% and risk-free rate is 4.8%. What will be the cost of equity at the new debt level?What will be the weighted average cost of equity capital?

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