Question

Fama’s Llamas has a weighted average cost of capital of 9.1 percent. The company’s cost of equity is 14 percent, and its pretax cost of debt is 6.4 percent. The tax rate is 24 percent. What is the company’s target debt-equity ratio? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)

Answer #1

Let's assume weight of Debt to be X

& weight of equity be(1-X)

WACC= (Weight of Debt)(Cost of Debt)(1-Tax Rate) + (Weight of Equity)(Cost of Equity)

9.10% = (X)(6.40%)(1-0.24) + (1-X)(14%)

9.10% = X*4.864% + 14% - X*14%

4.90% = X*9.136%

X = 53.63%

So, weight of Debt = 53.63%

Weight of Equity = 46.37%

Company's target debt-equity ratio = Debt/Equity

= 53.63%/46.37%

**= 1.1566**

**So, target debt-equity is 1.1566**

*If you need any clarification, you can ask in
comments. *

**If you like my answer,
then please up-vote as it will be
motivating**

Fama’s Llamas has a weighted average cost of capital of 9.3
percent. The company’s cost of equity is 12.9 percent, and its cost
of debt is 7.5 percent. The tax rate is 23 percent. What is the
company’s debt-equity ratio? (Do not round intermediate
calculations and round your answer to 4 decimal places, e.g.,
32.1616.)

Fama’s Llamas has a weighted average cost of capital of 9.1
percent. The company’s cost of equity is 12.7 percent, and its cost
of debt is 7.3 percent. The tax rate is 21 percent. What is the
company’s debt-equity ratio?

Fama’s Llamas has a weighted average cost of capital of 9.9
percent. The company’s cost of equity is 13.5 percent, and its cost
of debt is 8.1 percent. The tax rate is 24 percent. What is the
company’s debt-equity ratio?

Fama’s Llamas has a weighted average cost of capital of 9.4
percent. The company’s cost of equity is 13 percent, and its cost
of debt is 7.6 percent. The tax rate is 24 percent. What is the
company’s debt-equity ratio?

Fama’s Llamas has a WACC of 9.1%. The company’s cost of equity
is 11% and its cost of debt is 6.4%. The tax rate is 21%.
What is the company’s debt-equity ratio?

Fama's Llamas has a weighted average cost of capital of 9
percent. The company's cost of equity is 15 percent, and its pretax
cost of debt is 10 percent. The tax rate is 36 percent. What is the
company's target debt-equity ratio?
(Do not round intermediate calculations and round your
final answer to 2 decimal places. For example, 1.2345 should be
entered as 1.23.)

Fama's Llamas has a weighted average cost of capital of 9
percent. The company's cost of equity is 16 percent, and its pretax
cost of debt is 10 percent. The tax rate is 36 percent. What is the
company's target debt-equity ratio?

Dickson, Inc., has a debt-equity ratio of 2.35. The firm’s
weighted average cost of capital is 12 percent and its pretax cost
of debt is 9 percent. The tax rate is 24 percent.
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.)
b.
What is the company’s unlevered cost of equity capital?
(Do not round intermediate calculations and enter your...

Dickson, Inc., has a debt-equity ratio of 2.2. The firm’s
weighted average cost of capital is 9 percent and its pretax cost
of debt is 6 percent. The tax rate is 21 percent.
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.)
b.
What is the company’s unlevered cost of equity capital?
(Do not round intermediate calculations and enter your...

Williamson, Inc., has a debt?equity ratio of 2.48. The company's
weighted average cost of capital is 10 percent, and its pretax cost
of debt is 6 percent. The corporate tax rate is 35 percent. a. What
is the company's cost of equity capital? (Do not round intermediate
calculations. Enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.) Cost of equity capital % b. What is the
company's unlevered cost of equity capital? (Do not round
intermediate...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 6 minutes ago

asked 9 minutes ago

asked 9 minutes ago

asked 15 minutes ago

asked 28 minutes ago

asked 44 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago