Jungle, Inc., has a target debt—equity ratio of 0.72. Its WACC is 11 percent, and the tax rate is 33 perce

debt—equity ratio=debt/equity
Hence debt=0.72equity
Let equity be $x
Debt=$0.72x
Total assets=debt+equity
=1.72equity
WACC=Respective costs*Respective investment weights
1.
0.11=(x/1.72x*0.165)+(0.72x/1.72x*Cost of debt)
0.11=0.095930232+(0.72/1.72*Cost of debt)
Cost of debt=(0.110.095930232)*1.72/0.72
=0.033611(Approx)
Hence pretax cost of debt=0.033611/(10.33)
=5.02%(Approx).
2.
0.11=(x/1.72x*Cost of equity)+(0.72x/1.72x*0.073)
Cost of equity=(0.110.030558139)*1.72
=13.66%(Approx).
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