Question

Crosby Industries has a debt–equity ratio of 1.4. Its WACC is 14 percent, and its cost of debt is 9 percent. There is no corporate tax.

a. What is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Cost of equity             %

b. What would the cost of equity be if the debt–equity ratio were 2? (Do not round intermediate calculations and enter your answer as a percent rounded to the nearest whole number, e.g., 32.)

Cost of equity             %

What would the cost of equity be if the debt–equity ratio were .4? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Cost of equity             %

What would the cost of equity be if the debt–equity ratio were zero? (Do not round intermediate calculations and enter your answer as a percent rounded to the nearest whole number, e.g., 32.)

Cost of equity             %

Answer 1