Target debt-equity ratio-what is its pretax cost of debt

Assignment Help Financial Management

Reference no: EM13944533

Blue Bull, Inc., has a target debt-equity ratio of .87. Its WACC is 8.6 percent, and the tax rate is 30 percent.

Required:

(a) If the company’s cost of equity is 12.7 percent, what is its pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Pretax cost of debt %

(b) If the aftertax cost of debt is 5.3 percent, what is the cost of equity?

Reference no: EM13944533

Questions Cloud

The bond may be converted into how many shares : A convertible bond has the following features (rounding allowed in answers): The bond may be converted into how many shares? What is the current value of the convertible as a bond if prevailing interest rates are 6% (n=10)? What is the current value ..

New issue of common stock-the required return : Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .63. It’s considering building a new $65.3 million manufacturing facility. If the tax rate is 38 percent, A new issu..

What will be the approximate capital gain of this bond : A bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of 8.70% with interest paid annually. If the current market price is $870, what will be the approximate capital gain of this bond over the next year if its yield to m..

In the market-the rate of return of the risk free asset : Suppose in the market, the rate of return of the risk free asset is 10%. The tangency portfolio has an expected rate of return of 20% and a standard deviation of 20%. In a mean-standard deviation graph, show all possible portfolios of risky asset, th..

Target debt-equity ratio-what is its pretax cost of debt : Blue Bull, Inc., has a target debt-equity ratio of .87. Its WACC is 8.6 percent, and the tax rate is 30 percent. If the company’s cost of equity is 12.7 percent, what is its pretax cost of debt? If the aftertax cost of debt is 5.3 percent, what is t..

Target capital structure-what is the aftertax cost of debt : Mullineaux Corporation has a target capital structure of 63 percent common stock, 8 percent preferred stock, and 29 percent debt. Its cost of equity is 14.3 percent, the cost of preferred stock is 7.3 percent, and the cost of debt is 9 percent. The r..

Considering the replacement : Mississippi River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $27,000 to $44,000 per year. The new machine will cost $80,000, and it will have an estim..

Constant growth model cannot be used because the growth rate : A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g =-5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the..

Semi-annual coupon and are currently selling : The company has 60,000 bonds with a 30-year life outstanding, with 15 years until maturity. The bonds carry a 9 percent semi-annual coupon, and are currently selling for $870.73. What is the current value?

User Account

All Pages