13.00 points P14-14 WACC [LO3] Jungle, Inc, has a target debl-equity ratio of 0.

Question

13.00 points P14-14 WACC [LO3] Jungle, Inc, has a target debl-equity ratio of 0.71. ts WACC is 10 peroent,and the tax rate is 34 percent. Required: a) Jungle's cost of equity is 145 percent, what is the pretax cost of deb? (Do not round your (Click to selecty (b) If instead you know that the afhertax cost of debt is 6.7 percent, what is the cost of equity? (Do not o select): References eBook & Resources Dificulty: Basic Section: 144 The W P14-14 WACC [LO3] Learning Objective: 14-03 How to 2 3 4

Explanation / Answer

a. 10% *1.71 = 0.71*pretax cost of debt*0.66 + 14.50%

pretax cost of debt = 5.55%

b. 10% *1.71 = 0.71*6.7%*0.66 + cost of equity

cost of equity = 13.96%

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