Recalculate the equity cost of capital

Reference no: EM132008346

Question: NatNah, a builder of acoustic accessories, has no debt and an equity cost of capital of 16%. Suppose NatNah decides to increase its leverage and maintain a market debt-to-value ratio of 0.6. Suppose its debt cost of capital is 8% and its corporate tax rate is 33%. If NatNah's pretax WACC remains constant, what will its (effective after-tax) WACC be with the increase in leverage? (Hint: While the pretax WACC remains the same, the equity cost of capital increases when lower cost debt is added to the capital structure. However, you will not need to recalculate the equity cost of capital since the overall pretax WACC is assumed to remain constant even after the addition of? debt.)

The effective after-tax WACC will be _____%.(Round to two decimal places.)

Reference no: EM132008346

Questions Cloud

How can you leave yourself in the same position : How can you leave yourself in the same position as if the board had elected to make the dividend payment instead? To receive your dividend, the percentage

Why is it important to disclose non-cash transaction explain : Why is it important to disclose non-cash transaction? Explain. What questions about cash are answered by the Statement of Cash Flows? Explain

Evaluate the main forms that slave resistance took : Evaluate the main forms that slave resistance took, analyze the historical forces behind this resistance, and explain its main effects.

Compute the company total required production : Compute the company's total required production in units of finished product for the entire three-month period ending September 30

Recalculate the equity cost of capital : NatNah, a builder of acoustic accessories, has no debt and an equity cost of capital of 16%. Suppose NatNah decides to increase its leverage and maintain.

What are the key issues : Declining the coffee, Zalifa settles into one of the comfortable chairs facing the desk. What are the key issues? What should Zalifa do

What is the dollar amount of each payment jan receives : Jan sold her house on December 31 and took a $15,000 mortgage as part of the payment. What is the dollar amount of each payment Jan receives?

Critically analyse the concept of risk : Critically analyse the concept of risk; discuss how it can be measured and ranked and outline how a project risk management strategy may be constructed

What is the total aftertax cash flow to shareholders : National Business Machine Co. (NBM) has $6 million of extra cash after taxes have been paid. NBM has two choices to make use of this cash.

User Account

All Pages