Question
Williamson, Inc. has a debt-equity ratio of 2.52. The company's weighted average cost of capital is 11 percent, and its pretax cost of debt is
Williamson, Inc. has a debt-equity ratio of 2.52. The company's weighted average cost of capital is 11 percent, and its pretax cost of debt is 5 percent. The corporate tax rate is 22 percent.
a. What is the company's 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 company's 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 weighted average cost of capital be if the company's debt-equity ratio were .60 and 1.60? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
\begin{tabular}{|l|l|l|l|} \hline a. & Cost of equity & % \\ \hline b. & Unlevered cost of equity & % \\ \hline c. & WACC at debt-equity ratio of . 60 & & % \\ \hline & WACC at debt-equity ratio of 1.60 & & % \\ \hline \end{tabular}
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