Willamson, Inc., has a debt-equity ratio of 2.49. The company\'s weighted averag

Question

Willamson, Inc., has a debt-equity ratio 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 a. What is the company's cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity capital 20ea % b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations. Enter your ok answer as a percent rounded to 2 decimal places, e.g. 32.16.) Unlevered cost of equity- 400] % ?.what would the weighted average cost of capital be if the company's debt-equityratio were 60 and 1 50? Do int ? not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g. 32.16.) Weighted average cost of capital Debt-equity ratio .60 Debt-equity ratio 1.50 12431 %

Explanation / Answer

Weighted average cost of capital Debt-Equity ratio 0.60 19.86% Debt-Equity ratio 1.50 13.97% Working: c-1 Weight Cost Weigheted Cost Debt           0.60 0.375 3.50% 1.31% Equity           1.00 0.625 29.68% 18.55%           1.60           1.00 19.86% a. Weight of: Debt           0.60 /           1.60 = 0.375 Equity           1.00 /           1.60 = 0.625 b. after tax cost of debt = 5%*(1-0.30) = 3.50% c-2 Weight Cost Weigheted Cost Debt           1.50 0.6 3.50% 2.10% Equity           1.00 0.4 29.68% 11.87%           2.50 1.0 13.97% Working: a. Weight of: Debt           1.50 /           2.50 = 0.6 Equity           1.00 /           2.50 = 0.4 b. after tax cost of debt = 5%*(1-0.30) = 3.50%

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