Question
Dickson, Incorporated, has a debt-equity ratio of 2.3. The firms weighted average cost of capital is 9 percent and its pretax cost of debt is
Dickson, Incorporated, has a debt-equity ratio of 2.3. The firms weighted average cost of capital is 9 percent and its pretax cost of debt is 5.3 percent. The tax rate is 24 percent.
a. What is the companys cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. What is the companys unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c. What would the companys weighted average cost of capital be if the firms debt-equity ratio were .75? What if it were 1.30? (Do not round intermediate calculations and
\begin{tabular}{|l|l|l|} \hline a. Cost of equity & & % \\ \hline b. Unlevered cost of equity & & % \\ \hline c. WACC if debt-equity ratio =.75 & & % \\ \hline c. WACC if debt-equity ratio =1.30 & & % \\ \hline \end{tabular}Step by Step Solution
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