Question
A firm currently has a capital structure with 15 % debt. The debt, which is virtually riskless, pays an interest rate of 4 %. The
A firm currently has a capital structure with 15 % debt. The debt, which is virtually riskless, pays an interest rate of 4 %. The expected rate of return on the equity 14 %. What is the Weighted-Average Cost of Capital if the firm pays no taxes? Enter your answer as a percentage rounded to two decimal places.Do not include the percentage sign in your answer.
a) WACC =
b) What would happen to the expected rate of return on equity if the firm changed its capital structure to 20 % debt? Assume the firm pays no taxes, the cost of debt does not change, and that the initial WACC is 12.50 %.Enter your anwer as a percentage rounded to two decimal places.Do not include the percentage sign as part of your answer.
Return on equity =
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