Porter Enterprises is considering a major recapitalization. The firm currently has a market value of $1 billion, a debt to capital ratio of 10%, a beta of 0.90, and a pre-tax cost of borrowing of 7%. It is considering tripling its debt to capital ratio to 30% and it believes that doing so will increase its firm value by 15%. The firm's tax rate is 40%; the risk-free rate is 6%; and the market risk premium is 4%. 

What will be the cost of debt at the 30% debt to capital ratio for the firm value to increase by 15%. (You can assume a 5% growth rate in savings in perpetuity.)

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To calculate the cost of debt at the 30 debt to capital ratio for the firm value to increase by 15 w... View the full answer