Crosby Industries has a debt-equity ratio of 1.5. Its WACC is 10 percent, and its cost of

Question:

Crosby Industries has a debt-equity ratio of 1.5. Its WACC is 10 percent, and its cost of debt is 7 percent. There is no corporate tax.

a. What is Crosby’s cost of equity capital?

b. What would the cost of equity be if the debt-equity ratio were 2.0? What if it were 0.5? What if it were zero?

Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...