The cost of equity and the afte-tax cost of debt

Assignment Help Financial Management

Reference no: EM131188423

The Guys and Cinderella Store has a cost of equity of 15.8 percent, a pretax cost of debt of 7.7 percent, and a tax rate of 35 percent. What is the firm's weighted average cost of capital if the debt-equity ratio is 0.40? Start by determining the after-tax cost of debt Then since Debt / Equity = 0.40 Debt = 0.40 * Equity Use: Equity + Debt = 1 (This means their weights equal to one) Then substituting: Equity + 0.40 * Equity = 1 1.40 Equity = 1 Equity = 1/1.40 (Is the weight of equity) Then determine the weight of Debt and then combine the weights with the cost of equity and the afte-tax cost of debt

Reference no: EM131188423

Questions Cloud

Leasing arrangement to finance some manufacturing tools : Kohers Inc. is considering a leasing arrangement to finance some manufacturing tools that it needs for the next 3 years. The tools will be obsolete and worthless after 3 years. The firm has the option to buy these tools. The firm will depreciate the ..

Example of a scene from a movie or tv show : Discuss one specific example of a scene from a movie or TV show that shows this sort of blurring.-Don't just describe it or repeat it; analyze it.

What is the minimum number of packages of buns and hot dogs : For this picnic, you need to feed at least 500 people. If you want to feed everyone, but still have equal numbers of buns and hot dogs, what is the minimum number of packages of buns and hot dogs you need, respectively?

Determining the organisational control : How can an organisation attempt to ensure that its remuneration and benefits program actually increases organisational control?

The cost of equity and the afte-tax cost of debt : The Guys and Cinderella Store has a cost of equity of 15.8 percent, a pretax cost of debt of 7.7 percent, and a tax rate of 35 percent. What is the firm's weighted average cost of capital if the debt-equity ratio is 0.40? Then determine the weight of..

Question regarding the leadership style : In this unit, you will explore opposing leadership styles found in managers. Likewise, you will explore your leadership style and how you can use your unique skills to effectively manage a healthcare environment.

What is the resultant force from the three forces : What is the resultant force from the three forces. Please show step by step and all work.

Compare relative age dating with radiometric dating : Compare and contrast relative age dating with radiometric dating.- What are the strengths and limitations (if any) of each?

Indicate which of these groups it primarily represents : Three groups that participate in the process of establishing GAAP are users, preparers, and auditors. These groups are represented by various organizations. For each organization listed below, indicate which of these groups it primarily represents..

User Account

All Pages