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Pharoah Chiropractic Clinic produces $260,000 of cash flow each year. The firm has no debt outstanding,...

Pharoah Chiropractic Clinic produces $260,000 of cash flow each year. The firm has no debt outstanding, and its cost of equity capital is 25 percent. The firm’s management would like to repurchase $520,000 of its equity by borrowing $520,000 at a rate of 9 percent per year. If we assume that the debt will be perpetual, find the cost of equity capital for Pharoah after it changes its capital structure. Assume that Modigliani and Miller Proposition 1 assumptions hold. (Round answer to 2 decimal places, e.g. 17.54%.)

Cost of equity capital enter the cost of equity capital in percentages rounded to 2 decimal places %

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jeff jeffy answered 8 months ago
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