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Crosby Industries has a debt-equity ratio of 1.5. Its WACC is 11 percent, and its cost of debt is 8 percent. There is no corporate tax.
Requirement 1:
What is Crosby’s cost of equity capital? (Do not round intermediate calculations. Input your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Cost of equity %
Requirement 2:
(a) What would the cost of equity be if the debt-equity ratio were 2? (Do not round intermediate calculations. Input your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
(b) What would the cost of equity be if the debt-equity ratio were 0.7? (Do not round intermediate calculations. Input your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
(c) What would the cost of equity be if the debt-equity ratio were zero? (Do not round intermediate calculations. Input your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
What does it cost a company to issue equity as opposed to debt? What factors influence the cost of equity? How does one value it in the weighted average cost of capital calculation?
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