Butler, Inc., has a target debt-equity ratio of .45. Its WACC is 9.6 percent and the tax

Question:

Butler, Inc., has a target debt-equity ratio of .45. Its WACC is 9.6 percent and the tax rate is 21 percent.

a. If the company’s cost of equity is 12.4 percent, what is its pretax cost of debt?

b. If instead you know that the aftertax cost of debt is 5.7 percent, what is the cost of equity?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Corporate Finance Core Principles And Applications

ISBN: 9781260571127

6th Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

See More Books

Question Posted: Nov 13, 2020 05:03 AM

See More Questions

Kose, Inc., has a target debt-equity ratio of .38. Its WACC is 10.1 percent and the tax rate is 25 percent. a. If the companys cost of equity is 12 percent, what is its pretax cost of debt? b. If...
Nally, Inc., is considering a project that will result in initial after tax cash savings of $4.2 million at the end of the first year, and these savings will grow at a rate of 2.5 percent per year...
Retlaw Corporation (RC) manufactures time series photographic equipment. It is currently at its target debt equity ratio of .80. Its considering building a new $50 million manufacturing facility....
Use the following data to calculate cost of merchandise sold under the FIFO method. September 1 Beginning Inventory 15 units at $20 each September 10 Purchase 20 units at $25 each September 20...
Suppose that a population contains 200,000 experimental units. Use a random number generator to select a simple random sample of n = 10 units from the population.
I:11-22 a. How are overhead costs treated in determining a manufacturing companys inventory? b. Do retailers have a similar rule? c. Are these rules the same as for financial accounting? If not,...
Is there any sovereign wealth fund, i.e. a state fund or agency investing capital, in your country? It is very likely that such an institution uses a name other than sovereign wealth fund.
What disclosures should be made by lessees and lessors related to future lease payments?
Cabrera & Associates uses job order costing. The company's beginning inventory balances are below: Work in Process $ 13,850 Manufacturing Overhead $ 1,980 At the beginning of the year, the company...
On November 1, 2020, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 100,000 yuan. Cheng expects to receive the goods on April 30, 2021, and make...
Given the following information for Tara Ita Power Co., find the WACC. Assume the companys tax rate is 21 percent. Debt: 7,000 5 percent coupon bonds outstanding, $1,000 par value, 20 years to...
In the previous problem, suppose the companys stock has a beta of 1.20. The risk-free rate is 3.1 percent, and the market risk premium is 6.5 percent. Assume that the overall cost of debt is the...
Three hundred little plastic yellow ducks are dumped in a pond; one of them contains a prize stamped on the bottom. Leonardo examines each duck until he discovers the prize. He discards each duck...
Design a clocked D flip-flop, using a modified ECL circuit design, such that the output becomes valid on the negative-going edge of the clock signal.
An L2 steel strap having a thickness of 0.125 in. and a width of $2 \mathrm{in}$. is bent into a circular arc of radius $600 \mathrm{in}$. Determine the maximum bending stress in the strap.
Cars traveling from Canada to the United States through the Thousand Islands Border Crossing must stop for US Customs and Immigration. During the stop, each passenger in the car must present a...
Gasoline is pumped through a 2 in. sch 40 pipeline upward into an elevated storage tank at $60^{\circ} \mathrm{F}$. An orifice meter is mounted in a vertical section of the line, which uses a DP cell...
Change the recurring costs in Problem and Exercise 3 to $40,000 and redo the analysis. Problem and Exercise 3 Assume you are put in charge of launching a new website for a local nonprofit...
In problem use (12) to find the general solution of the given differential equation on (0, ). x 2 y'' + xy' + (9x 2 4)y = 0
(a) Given a mean free path = 0.4 nm and a mean speed vav = 1.17 105 m/s for the current flow in copper at a temperature of 300 K, calculate the classical value for the resistivity of copper. (b)...
Essence of Skunk Fragrances, Ltd., sells 5,450 units of its perfume collection each year at a price per unit of $480. All sales are on credit with terms of 1/10, net 40. The discount is taken by 35...
The Arizona Bay Corporation sells on credit terms of net 30. Its accounts are, on average, 5 days past due. If annual credit sales are $8.95 million, what is the company's balance sheet amount in...
Air Spares is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry. A new customer has placed an order for eight high-bypass turbine engines, which...
You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company...
Brief Exercise 10-6 Flint Inc. purchased land, building, and equipment from Laguna Corporation for a cash payment of $327,600. The estimated fair values of the assets are land $62,400, building...
"faithful respresentation" is the overriding principle that should be followed in ones prepaparation of IFRS-based financial statement. what is it? explain it fully quoting IAS. how this this...

Butler, Inc., has a target debt-equity ratio of .45. Its WACC is 9.6 percent and the tax

Question:

Step by Step Answer:

a Using the equation to calculate WAC...View the full answer

Corporate Finance Core Principles And Applications

Students also viewed these Business questions