Weston Industries has a debt–equity ratio of 1.1. Its WACC is 8.2 percent, and i

Question

Weston Industries has a debt–equity ratio of 1.1. Its WACC is 8.2 percent, and its cost of debt is 6.4 percent. The corporate tax rate is 35 percent.

What is Weston’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).)

What is Weston’s unlevered cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

What would the cost of equity be if the debt-equity ratio were 2? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

What would the cost of equity be if the debt-equity ratio were 1? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

What would the cost of equity be if the debt-equity ratio were zero? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

What is Weston’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).)

Explanation / Answer

a. Weston’s cost of equity capital (x) = x + 6.4% (0.65) = 8.2%

= 4.04%

b. Weston’s unlevered cost of equity capital (where there is no debt) = WACC = 8.2%

c-1. the cost of equity (x) be if the debt-equity ratio were 2 = x + 2 * 6.4% * (0.65) = 8.2%

=(-) 0.12%

c-2. the cost of equity (x) be if the debt-equity ratio were 1 = x + 6.4% (0.65) = 8.2%

= 4.04%

c-3 the cost of equity be if the debt-equity ratio were zero (where there is no debt) = WACC = 8.2%

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.