Shadow Corp. has no debt but can borrow at 5.8 percent. The firms WACC is currently 9.1

Question:

Shadow Corp. has no debt but can borrow at 5.8 percent. The firm’s WACC is currently 9.1 percent and the tax rate is 22 percent.

a. What is the company’s cost of equity?

b. If the company converts to 25 percent debt, what will its cost of equity be?

c. If the company converts to 50 percent debt, what will its cost of equity be?

d. What is the company’s WACC in part (b)? In part (c)?

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...

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