Question
Your company is financed 40% with debt and 60% with equity. The internal rate of return on the company's debt is 7%, the equity has
Your company is financed 40% with debt and 60% with equity. The internal rate of return on the company's debt is 7%, the equity has a beta of 1.5. The risk-free rate of return is 5% and the market risk premium is 6%. The corporate tax rate is 30%.
a. What is the company's cost of capital or unlevered cost of equity?
b. What is the company's weighted average cost of capital (WACC)?
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Personal Financial Planning
Authors: Lawrence J. Gitman, Michael D. Joehnk
11th Edition
0324422865, 978-0324422863
