Question
How do I know when to use WACC vs MM II? For example: Shadow Corp. has no debt but can borrow at 5.4 percent. The
How do I know when to use WACC vs MM II? For example:
| Shadow Corp. has no debt but can borrow at 5.4 percent. The firms WACC is currently 9.3 percent and the tax rate is 22 percent. |
| a. | What is the companys cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b. | If the firm converts to 35 percent debt, what will its cost of equity be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| c. | If the firm converts to 55 percent debt, what will its cost of equity be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| d-1. | If the firm converts to 35 percent debt, what is the companys WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| d-2. | If the firm converts to 55 percent debt, what is the companys WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
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Accounting What the Numbers Mean
Authors: David H. Marshall, Wayne W. McManus, Daniel F. Viele,
9th Edition
978-0-07-76261, 0-07-762611-7, 9780078025297, 978-0073527062
