Northern Illinois UniversityFIN 330 serendipity inc

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Northern Illinois UniversityFIN 330

serendipity inc. is re-evaluating its debt level. its current capital structure consists of 80% debt and 20% common equity, its beta is 1.60, and its tax rate is 35%. however, the cfo thinks the company has too much debt, and he is considering moving to a capital structure with 40% debt and 60% equity. the risk-free rate is 5.0% and the market risk premium is 6.0%. by how much would the capital structure shift change the firm's cost of equity?