cost of equity question??
How does the cost of equity change with lowered interest rates on the debt in the cap structure (assume all else is equal; ie not a floating rate that changes due to an decrease in the risk free rate (as this would clearly affect the CAPM formula)). BIWS claims that lowered interest rate don't affect cost of equity, but if increasing tax rates push down cost of equity (levered beta formula that gets plugged into CAPM) due to the reduced impact of the debt, then why couldn't you say the same thing about lowering the interest rates directly. Thanks