Williamson has a debt equity ratio of of 2.49. the company’s weighted average co

Question

Williamson has a debt equity ratio of of 2.49. 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 30 percent.
What is the company’s cost of equity capital? what is the company’s unlevered cost of equity capital? Do not round calculations. Enter answers as a percent rounded to 2 decimal places. Williamson has a debt equity ratio of of 2.49. 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 30 percent.
What is the company’s cost of equity capital? what is the company’s unlevered cost of equity capital? Do not round calculations. Enter answers as a percent rounded to 2 decimal places. Williamson has a debt equity ratio of of 2.49. 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 30 percent.
What is the company’s cost of equity capital? what is the company’s unlevered cost of equity capital? Do not round calculations. Enter answers as a percent rounded to 2 decimal places.

Explanation / Answer

WACC = 11%
D/E Ratio = 2.49
Pretax Cost of Debt = 5%
Tax Rate = 30%

WACC = (D/A) * Pretax Cost of debt * (1 - tax) + (E/A) * Cost of Equity
0.11 = (2.49/3.49) * 0.05 * (1 - 0.30) + (1/3.49) * Cost of Equity
0.11 = 0.0250 + 0.2865 * Cost of Equity
0.085 = 0.2865 * Cost of Equity
Cost of Equity = 0.2967
Cost of Equity = 29.67%

So, Company’s cost of equity capital is 29.67%

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