Question

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?

Answer #1

Let weight of debt = X

So, Weight of equity = 1 – X

Cost of equity = 11%

Cost of debt = Interest rate x (1 - Tax Rate)

= 6.4% x (1 – 0.21)

= 5.06%

Weighted average cost of capital

= Weight of equity x Cost of equity + Weight of debt x Cost of debt

So, 9.1 = (1 – X) x 11 + X x 5.06

So, 9.1 = 11 – 11X + 5.06 X

So, 5.94 X = 11 – 9.1

So, X = 1.9 / 5.94

= 0.32

So, weight of debt = 0.32 or 32%

Weight of equity = 1 – Weight of debt

= 1 – 0.32

= 0.68 or 68%

So, Debt-Equity Ratio

= Weight of Debt / Weight of equity

= 32 / 68

= 1 : 2.13

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 9.1
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.)

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 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.)

Paget, Inc., has a target debt−equity ratio of 1.65. Its WACC is
9.1 percent, and the tax rate is 40 percent.
a.
If the company’s cost of equity is 12 percent, what is its
pretax cost of debt? (Do not round intermediate
calculations and round your final answer to 2 decimal places.
(e.g., 32.16))
Cost of debt
%
b.
If instead you know that the aftertax cost of debt is 6.8
percent, what is the cost of equity? (Do not...

Munkins Inc. has a WACC of 15%. The company’s cost to equity
is 18% and cost to debt is 8%. What is the company’s debt/equity
ratio if its marginal tax rate is 35%?
Select one:
a. 23.44%
b. 50.00%
c. 30.62%
d. 76.56%

Kose, Inc. has a target debt-equity ratio of 0.38. Its WACC is
10.1% and the tax rate is 25%.
a.
If the company’s cost of equity is 12%, what is the pretax cost of
debt?
b.
If instead you know the aftertax cost of debt is 6.4%, what is the
cost of equity?

Fama's Llamas has a weighted average cost of capital of 7.9
percent. The company's cost of equity is 11 percent, and its cost
of debt is 5.8 percent. The tax rate is 25 percent. What is Fama's
debt-quity ratio?

3. Maxwell Industries has a debt– equity ratio of 1.5. Its WACC
is 11 percent, and its cost of debt is 8 percent. The corporate tax
rate is 35 percent. a. What is Maxwell’s cost of equity capital? b.
What is Maxwell’s unlevered cost of equity capital?

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 8 minutes ago

asked 32 minutes ago

asked 39 minutes ago

asked 40 minutes ago

asked 45 minutes ago

asked 46 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago