Portneuf Industries has a debtequity ratio of 1.5. Its WACC is 9 percent, and its cost of

Question:

Portneuf Industries has a debt–equity ratio of 1.5. Its WACC is 9 percent, and its cost of debt is 5.5 percent. The corporate tax rate is 35 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 cost of equity be if the debt–equity ratio were 2? What if it were 1.0? 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...