What is the pretax cost of debt

Assignment Help Financial Management

Reference no: EM131185276

Jungle, Inc., has a target debt—equity ratio of 0.77. Its WACC is 11 percent, and the tax rate is 31 percent.

Required:

(a) If Jungle's cost of equity is 16 percent, what is the pretax cost of debt? (Do not round your intermediate calculations.)

(b) If instead you know that the aftertax cost of debt is 5.7 percent, what is the cost of equity? (Do not round your intermediate calculations.)

Reference no: EM131185276

Questions Cloud

Considering perpetual project-what is the net present value : Moody Industrial Supply is considering a perpetual project that will produce annual cash revenues of $382,000. The annual cash costs are $313,000 and the initial investment is $350,000. The firm is an all-equity firm with a tax rate of 35 percent and..

What is the open interest on this exchange : Imagine only 1 stock trades on an exchange with 10 traders that buy and sell. The share price of the stock is $150 with 10 million shares outstanding. Five trades sell 1 options contract each at $4 per option contract. What is the market value of the..

What is the aftertax cost of debt : Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 16 years to maturity that is quoted at 103 percent of face value. The issue makes semiannual payments and has an embedded cost of 11 percent annually. I..

The bonds make semiannual payments : Consider the following information for Evenflow Power Co., Debt: 3,500 6 percent coupon bonds outstanding, $1,000 par value, 22 years to maturity, selling for 104 percent of par; the bonds make semiannual payments. Common stock: 87,500 shares outstan..

What is the pretax cost of debt : Jungle, Inc., has a target debt—equity ratio of 0.77. Its WACC is 11 percent, and the tax rate is 31 percent. If Jungle's cost of equity is 16 percent, what is the pretax cost of debt? If instead you know that the aftertax cost of debt is 5.7 percent..

Short-term planning and long-term planning : Please provide specific examples of at least three internal and/or external conditions within a company that could be related to the theory of price. How might this affect daily operations? Short-term planning? Long-term planning?

Uses percentage-of-sales method to estimate uncollectibles : Bigg and Talle Corporation uses the percentage-of-sales method to estimate uncollectibles. Net credit sales for the current year amount to $5,000,000 and management estimates 2% will be uncollectible. Allowance for Doubtful Accounts prior to adjustme..

How much are current assets-company quick ratio : A firm’s balance sheet contains $320 of cash, $2,000 of fixed assets, $1,380 of accounts receivable, $780 of accounts payable, $500 of inventory, and $1,000 on a revolving line of credit. Assuming that list contains all of the company’s assets and li..

Observe news reports about financial markets : If you observe news reports about financial markets for some time, you will notice that investors pay a tremendous amount of attention to economic data releases from thee government. Why do you think this is the case? What are investors concerned abo..

User Account

All Pages