Question
Ghirardelli currently has no loans. The company's cost of capital is 15 percent annually. Ghirardelli expects a cash inflow of $159,000 in annual earnings before
Ghirardelli currently has no loans. The company's cost of capital is 15 percent annually. Ghirardelli expects a cash inflow of $159,000 in annual earnings before interest and taxes, forever. The company faces a 24 % tax rate on all taxable income.
If Ghirardelli does decide to borrow money, it will do so by issuing corporate bonds. If this happens, the interest rate on the bonds will be 8 %.
a. Ghirardelli's cost of equity will equal _______ if it borrows $201,000 and uses it to back its shares of stock. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. Continue part (a) --- In addition, in this case Ghirardelli's weighted average cost of capital will equal ____. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a. Cost of Equity
b. WACC
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