Question
A company currently has a WACC of 10.6 percent and no debt. The tax rate is 21 percent. Interest rate is 6% a. What is
A company currently has a WACC of 10.6 percent and no debt. The tax rate is 21 percent. Interest rate is 6%
a. What is the companys 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.?
You may need to use EXCEL to solve this question.
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
