Question: The current expected return on a firm's debt is 8% and the firm's cost of equity capital is 12%. The firm currently has $100 million

The current expected return on a firm's debt is 8% and

The current expected return on a firm's debt is 8% and the firm's cost of equity capital is 12%. The firm currently has $100 million in debt and $200 million in equity. The firm's debt level is expected to remain approximately constant for the foreseeable future. The corporate tax rate is.40. (a) What is the unlevered cost of equity capital for this firm (i.e., what is rU or r0)? (b) If the firm altered its debt level so that it had an equal amount of debt and equity and then planned on maintaining this new debt level for the foreseeable future, what would be the expected return on the firm's equity after this change in capital structure? Assume the interest rate on the debt will not change

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