Dickson, Inc., has a debt-equity ratio of 2.3. The firms weighted average cost of capital is 9
Question:
Dickson, Inc., has a debt-equity ratio of 2.3. The firm’s weighted average cost of capital is 9 percent and its pretax cost of debt is 5.3 percent. The tax rate is 24 percent.
a. What is the company’s cost of equity capital?
b. What is the company’s unlevered cost of equity capital?
c. What would the company’s weighted average cost of capital be if the firm’s debt-equity ratio were .75? What if it were 1.3?
Step by Step Answer:
a The companys cost of equity capital Cost of Equi...View the full answer
Corporate Finance
ISBN: 9781260772388
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Related Video
The weighted average cost of capital (WACC) represents a firm\'s average after-tax cost of capital from all sources, including common stock, preferred stock, bonds, and other forms of debt. WACC is the average rate that a company expects to pay to finance its assets
Students also viewed these Business questions
-
What would be the weighted average cost of capital with the following details; cost of equity is 10%, pretax cost of debt is 15%, the tax rate is 30%, and cost of preference shares is 5%? It has been...
-
What is Harry Davis weighted average cost of capital (WACC)? MINI CASE During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital...
-
What is the current weighted average cost of capital of the firm(Look before you Leverage!)? What effect would a change in the debt to equity ratio have on the weighted average cost of capital and...
-
Does the EOQ increase or decrease if estimates of setup (order) costs include fixed, semi-variable, and pure variable costs while inventory-holding costs includes only pure variable costs? Vice...
-
Draw the type-B OC curve for the single-sampling plan n = 50, c = 1.
-
After the amount due on a sale of $28,000, terms 2/10, n/eom, is received from a customer within the discount period, the seller consents to the return of the entire shipment for a cash refund. The...
-
37 Use divisibility rules to determine if each of the following is divisible by 2 .
-
Determining sales and variable cost volume variances Todhunter Publications established the following standard price and costs for a hardcover picture book that the company produces. Todhunter...
-
24. Accrued Intererst: You purchase a bond with a coupon rate of6.4 percent, a par value of $1,000. The bond has a coupon rate of5.3 percent, and there are four months to the next semiannualcoupon 2...
-
The diagram shows the positions of a ball as it rolled down a track. The ball took 0.5 s to roll from one position to the next. For example, it rolled from A to B in 0.5 s and from B to C in 0.5 s...
-
In a world of corporate taxes only, show that the WACC can be written as WACC = R 0 [1 T C (B/V)].
-
Warsaw Manufacturing, Inc., plans to announce that it will issue $1.9 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 5...
-
What is evidence-based policing? What potential does it hold for managing police organizations in the future?
-
What is meant by stratified sampling in variables sampling? What is the purpose of using stratified as opposed to unstratified sampling ?
-
List and describe the major ways the auditor obtains an understanding of a client and its business. How does the auditors understanding of the client and its business affect the conduct of the audit ?
-
Under what circumstances is it appropriate to use statistical measurement techniques with judgmental selection methods?
-
Describe what is meant by compliance and substantive tests of transactions. What is the relationship between them ?
-
Explain what is meant by block sampling, and describe how an auditor could obtain five blocks of 20 sales invoices from a sales journal.
-
Assume the same information for Genve Dfense Systmes as in Exercise 9.17 except that Genve Dfense Systmes uses a 90% incremental unit-time learning curve as a basis for forecasting direct...
-
If a test has high reliability. O the test measures what the authors of the test claim it measures O people who take the same test twice get approximately the same scores both times O scores on the...
-
Short-tern investments why is referred stock with a dividend tied to short-tern interest rates an attractive short-term investment for corporations with excess cash?
-
Collection and disbursement floats which would a firm prefer: a net collection float or a net disbursement float? Why?
-
Agency issues It is sometimes argued that excess cash held by a firm can aggravate agency problems and, more generally, reduce incentives for shareholder wealth maximization how would you frame the...
-
(C) C 34. Let f(x) = x5 +1, and let g be the inverse function of f. What is the value of g'(0)? (A)-1 (B) 5 (C) - 1/3 (D) g'(0) does not exist feet and one leg AC is decreasing at the rate of
-
Your chapter of FBLA sponsors a yearly Christmas Activity for your local hospital. This activity is also related to the March of Dimes because any monetary donations will be given to that...
-
The Richter scale is a numerical scale that uses base 10 logarithms for measuring an earthquake's magnitude. The larger the number, the more intense the earthquake. For example, an earthquake with a...
Study smarter with the SolutionInn App