If Wild Widgets, Inc , were an all equity company, it would have a beta of 90 The company has a target debt equity ratio of 45 The expected return on the market portfolio is 11 percent and Treasury bills currently yield 2 9 percent The company has one bond issue outstanding that matures in 20 years, a par value of $1,000, and a coupon rate of 5 9 percent The bond currently sells for $1,045 The corporate tax rate is 22 percent a What is the companys cost of debt (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 cost of equity (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e g , 32 16 ) c What is the companys weighted average cost of capital (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e g , 32 16 ) a Cost of debt b Cost of equity c WACC

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 19, 2024

If Wild Widgets, Inc., were an all-equity company, it would have a beta of .90. The company has a target debt-equity ratio of .45. The

If Wild Widgets, Inc., were an all-equity company, it would have a beta of .90. The company has a target debt-equity ratio of .45. The expected return on the market portfolio is 11 percent and Treasury bills currently yield 2.9 percent. The company has one bond issue outstanding that matures in 20 years, a par value of $1,000, and a coupon rate of 5.9 percent. The bond currently sells for $1,045. The corporate tax rate is 22 percent.

a.	What is the companys cost of debt? (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 cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c.	What is the companys weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)