Question

Problem 16-13 Calculating WACC [LO1] Citee Corp. has no debt but can borrow at 6.6 percent. The firm’s WACC is currently 8.8 percent, and the tax rate is 24 percent. a. What is the company’s cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If the firm converts to 35 percent debt, what will its cost of equity be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. If the firm converts to 60 percent debt, what will its cost of equity be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) d-1. If the firm converts to 35 percent debt, what is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) d-2. If the firm converts to 60 percent debt, what is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

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ke Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins E AutoSum - Cut A A EWrap Text Calibri 11 General ECopy Fill В IU- Merge & Center Insert Delete Format Paste -.0 .00 .00 0 Conditional Format Cell Sort & Find & Filter Select % Format Painter Clear Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fox HN471 HR HS НM HN но НР но НT 470 471 472 473 474 ke k0 WACC 8.8% AS COMPANY IS ALL EQUITY FINANCED а 475 476 b kd 6.6% 477 DEBT 35% DEBT -EQUITY = 35/65 478 ke ko (ko-kd) (D/S) (1-t) ke 0.088 (0.088-0.066) (35/65) (1-0.24) 479 480 ke 0.097003 481 ke -9.70% 482 483 DEBT 60% DEBT -EQUITY = 60/40 ke ko (ko-kd) (D/S) (1-t) ke 0.088(0.088-0.066) (60/40) (1-0.24) 484 C 485 486 487 ke 0.11308 488 ke 11.31% 489 490 YIELD bond portfolio R I CONVEXITY DGM beta LEASING PV, FV, ANNUITY clean КЕ САРМ port future INDEX UTILITY, SHARPE, beta DIR right INTL CAP BUD SANDRINE WACC II Rea erences: CF135 120% XУ WA 02:35 ENG 25-11-2019

ke - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins E AutoSum - Cut A A Wrap Text Calibri 11 General ECopy Fill В IU- Merge & Center Insert Delete Format Paste +.0 .00 Conditional Format Cell Sort & Find & Filter Select % .00 0 Format Painter Clear Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fox HO503 HR HS НM HN Но НР но НT 490 DEBT 35% 491 d-1 492 EQUITY 65% WACC = We*ke + Wd*kd*(1-t) 493 WACC (65%)*(9.70%)+ (35%)*(6.6%)* (1-0.24) 8.06% 494 495 496 DEBT 60% d-2 497 EQUITY = 40% WACC We*ke + Wd*kd*(1-t) WACC = (40%)*(11.31%) (60%)*(6.6%)* (1-0.24) = 498 7.53% 499 500 501 502 503 504 505 506 507 508 509 R I CONVEXITY DGM beta LEASING PV, FV, ANNUITY clean port future INDEX DIR right YIELD bond portfolio КЕ САРМ UTILITY, SHARPE, beta INTL CAP BUD SANDRINE WACC II Rea erences: CF135 120% XУ WA 02:36 ENG 25-11-2019