Question

ABC company’s cost of equity is 12.5%. The company has a target debt-equity ratio of 50%. It cost of debt is 7.5 percent, before taxes. If the tax rate is 21 percent, what is the weighted average cost of capital?

A. 10.00 percent B. 10.31 percent C. 10.83 percent D. 10.97 percent E. None of the above.

Answer #1

Ans:- WACC is given by Cost of equity * % of equity + Cost of debt * % of debt * (1 - Tax rate)

Since debt-equity ratio = 0.50 = 0.50 / 1, that means % of debt will be 0.50 / (1+0.50) = 0.5 / 1.5 and % of equity will be 1 / (1+0.5) =1/1.5

= 12.5% * 1/1.5 + 7.5 * 0.5 / 1.5 * (1 - 0.21) =0.1031 **=
10.31%.**

**Therefore, the weighted average cost of capital of the
firm will be 10.31%.option (b) is the right answer.**

**Note:- If this answer helps you pls give thumbs
up.**

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...

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?

Company B has a target debt-equity ratio of .62. Its WACC is
11.3 percent and the tax rate is 21 percent. What is the cost of
equity if the after tax cost of debt is 6.3 percent?

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...

Fama's Llamas has a weighted average cost of capital of 12.5
percent. The company's cost of equity is 17 percent, and its pretax
cost of debt is 7 percent. The tax rate is 34 percent. What is the
company's target debt-equity ratio?
Stock in Country Road Industries has a beta of 0.91. The market
risk premium is 7.5 percent, and T-bills are currently yielding 5
percent. The company's most recent dividend was $1.7 per share, and
dividends are expected to...

A company currently has the debt-to-equity ratio of 1/3. Its
cost of debt is 4% before tax and its cost of equity is 12%. Assume
that the company is considering raising the debt-to-equity ratio to
1/2. The tax rate is 20%. What is its new cost of equity under the
new debt-to-equity ratio? What is its new weighted average cost of
capital (WACC) under the new debt-to-equity ratio.

A company currently has the debt-to-equity ratio of 1/3. Its
cost of debt is 6% before tax and its cost of equity is 12%. Assume
that the company is considering raising the debt-to-equity ratio to
1/2. The tax rate is 20%. What is its new cost of equity under the
new debt-to-equity ratio? What is its new weighted average cost of
capital (WACC) under the new debt-to-equity ratio.

Suppose the WACC (weighted average cost of capital) of a firm is
12.5 percent, while its before-tax cost of debt is 3 percent. The
firm’s debt-to-equity ratio is 1, and the cost of equity of the
corresponding unlevered firm is 15 percent. By assuming that the
Modigliani-Miller Theorem with corporate taxes holds, answer the
following questions.
i) What is the effective corporate tax rate for the firm?
ii) What is the cost of equity of the firm?

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.
What is the company's cost of equity capital?
What is the unlevered cost of equity capital?
What would the company's weighted average cost of capital be if
the company's debt-equity ratio were .75 and 1.35?
Please answer this in Excel, thank you

Your company has the debt to equity breakdown below. The cost of
debt is 4% (based on the interest on debt of 5% and the tax rate of
20%) and the cost of the equity is 8%.
COST OF CAPITAL
PROPORTION OF TOTAL ASSETS
Equity
8%
.50
Debt
4% based on interest rate(1-t)
.50
A) What is your company’s Weighted Average Cost of Capital
(WACC)?
B) Your company’s Recruiting Division has $920,000 in total assets,
which is the total...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 6 minutes ago

asked 13 minutes ago

asked 41 minutes ago

asked 42 minutes ago

asked 43 minutes ago

asked 50 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