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Company TNT currently has zero debt in its capital structure, a total market value of $60...

Company TNT currently has zero debt in its capital structure, a total market value of $60 million, and an equity beta of 0.75. The company is considering a new capital structure, by issuing $25 million worth of debt and using the proceeds to buy back $25 million worth of equity (no impact on the firms total market value). The company’s corporate tax rate is 30%. Risk free rate is 6% and market return is 14%. How much would be the firms cost of equity after this recapitalization?

(a) 15.75% (b) 15.00% (c) 12.00% (d) 19.56% (e) Cannot be determined without additional information

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