Question
1.Ignore taxes and financial distress for this question. Suppose that your firm has a debt-equity ratio of 0.75, a cost of debt of 8.5%, and
1.Ignore taxes and financial distress for this question. Suppose that your firm has a debt-equity ratio of 0.75, a cost of debt of 8.5%, and an unlevered cost of equity of 15%.
a.What is your firm's cost of equity and WACC?
b.If you decrease your D/E ratio to 0.50, what would your cost of equity and WACC be? Assume that your cost of debt stays at 8.5%, regardless of your debt burden.
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Personal Finance
Authors: Jeff Madura
5th edition
132994348, 978-0132994347
