Laramie Trucking's CEO is considering a change to the company's capital structure, which currently consists of...

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Laramie Trucking's CEO is considering a change to the company'scapital structure, which currently consists of 25% debt and 75%equity. The CFO believes the firm should use more debt, but the CEOis reluctant to increase the debt ratio. The risk-free rate,r_RF, is 5.0%, the market risk premium, RP_M,is 6.0%, and the firm's tax rate is 25%. Currently, the cost ofequity, r_s, is 11.5% as determined by the CAPM. Whatwould be the estimated cost of equity if the firm used 60% debt?(Hint: You must first find the current beta and then the unleveredbeta to solve the problem.)
a. 13.58%
b. 14.77%
c. 12.50%
d. 11.50%
e. 16.05%

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Laramie Trucking's CEO is considering a change to the company'scapital structure, which currently consists of 25% debt and 75%equity. The CFO believes the firm should use more debt, but the CEOis reluctant to increase the debt ratio. The risk-free rate,rRF, is 5.0%, the market risk premium, RPM,is 6.0%, and the firm's tax rate is 25%. Currently, the cost ofequity, rs, is 11.5% as determined by the CAPM. Whatwould be the estimated cost of equity if the firm used 60% debt?(Hint: You must first find the current beta and then the unleveredbeta to solve the problem.)a. 13.58%b. 14.77%c. 12.50%d. 11.50%e. 16.05%