Question
A company currently has a WACC of 10.6 percent and no debt. The tax rate is 21 percent. The interest rate is 6% You may
A company currently has a WACC of 10.6 percent and no debt. The tax rate is 21 percent. The interest rate is 6%
You may need EXCEL to solve this problem.
a. What is the company's current cost of equity?
b. If the firm converts to 40 percent debt, what will its cost of equity be? And the WACC?
c. If the firm converts to 60 percent debt, what will its cost of equity be? And the WACC?
d. What can you conclude from the values of the cost of equity and WACC obtained in b. and c.?
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Foundations of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
16th edition
125927716X, 978-1259687969, 1259687961, 978-1259277160
