Question: The Rivera Group is thinking about changing its permanent capital structure from 20% debt to value to 40% debt to value. The following information is

The Rivera Group is thinking about changing its permanent capital structure from 20% debt to value to 40% debt to value. The following information is currently available, Required return on equity is 18%, cost of debt is 9%, Tax Rate is 35%. THe risk free rates 6%. If the company switches to 40% debt that cost of debt is estimated at 12%.

Calculate the required returns on the companies assets:

19) Calculate the current WACC:

20) Assume that the correct answer to question 18 is 15.80%. Calculate the cost of equity after the switch to 40% debt:

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