Dickson, Inc., has a debt-equity ratio of 2.5. The firm’s weighted average cost of capital is 11 percent and its pretax cost of debt is 9 percent. The tax rate is 22 percent. |
a. | What is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
b. | What is the company’s unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
c. | What would the company’s weighted average cost of capital be if the company's debt-equity ratio were .60 and 1.50? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
D/A = D/(E+D) | |||||||||
D/A = 2.5/(1+2.5) | |||||||||
=0.7143 | |||||||||
E/A = 1-D/A | |||||||||
=1-0.7143 | |||||||||
=0.2857 | |||||||||
a | |||||||||
WACC = Levered cost of equity*E/A+Cost of debt*(1-tax rate)*D/A | |||||||||
0.11= Levered cost of equity*0.2857+0.09*(1-0.22)*0.7143 | |||||||||
Levered cost of equity =-1.16% | |||||||||
b | |||||||||
Levered cost of equity = Unlevered cost of equity+D/E*( Unlevered cost of equity-cost of debt)*(1-tax rate) | |||||||||
-0.0115852975495916 = Unlevered cost of equity+2.5*(Unlevered cost of equity-0.09)*(1-0.22) | |||||||||
Unlevered cost of equity = 5.56 | |||||||||
C | |||||||||
Levered cost of equity = Unlevered cost of equity+D/E*( Unlevered cost of equity-cost of debt)*(1-tax rate) | |||||||||
Levered cost of equity = 5.56+0.6*(5.56-0.09)*(1-0.22) | |||||||||
Levered cost of equity = 8.12 | |||||||||
C | |||||||||
Levered cost of equity = Unlevered cost of equity+D/E*( Unlevered cost of equity-cost of debt)*(1-tax rate) | |||||||||
Levered cost of equity = 5.56+1.5*(5.56-0.09)*(1-0.22) | |||||||||
Levered cost of equity = 11.96 | |||||||||
Dickson, Inc., has a debt-equity ratio of 2.5. The firm’s weighted average cost of capital is...
Dickson, Inc., has a debt-equity ratio of 2.4. The firm’s weighted average cost of capital is 9 percent and its pretax cost of debt is 7 percent. The tax rate is 25 percent. a. What is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company’s unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer...
Dickson, Inc., has a debt-equity ratio of 2.25. The firm’s weighted average cost of capital is 10 percent and its pretax cost of debt is 7 percent. The tax rate is 22 percent. a. What is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company’s unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer...
Dickson, Inc., has a debt-equity ratio of 2.9. The firm’s weighted average cost of capital is 11 percent and its pretax cost of debt is 7 percent. The tax rate is 25 percent. a. What is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company’s unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer...
Dickson, Inc., has a debt-equity ratio of 2.6. The firm's weighted average cost of capital is 9 percent and its pretax cost of debt is 7 percent. The tax rate is 24 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g. 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer...
Dickson, Inc., has a debt-equity ratio of 2.3. The firm's weighted average cost of capital is 11 percent and its pretax cost of debt is 8 percent. The tax rate is 23 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer...
Dickson, Inc., has a debt-equity ratio of 2.4. The firm's weighted average cost of capital is 9 percent and its pretax cost of debt is 7 percent. The tax rate is 25 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer...
Dickson, Inc., has a debt-equity ratio of 2.15. The firm's weighted average cost of capital is 8 percent and its pretax cost of debt is 5 percent. The tax rate is 25 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer...
Williamson, Inc., has a debt–equity ratio of 2.54. The company's weighted average cost of capital is 9 percent, and its pretax cost of debt is 7 percent. The corporate tax rate is 40 percent. a. What is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity capital % b. What is the company’s unlevered cost of equity capital?...
Williamson, Inc., has a debt-equity ratio of 2.47. The company's weighted average cost of capital is 9 percent, and its pretax cost of debt is 7 percent. The corporate tax rate is 40 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity capital 20.72 % b. What is the company's unlevered cost of equity capital? (Do not...
Dickson, Inc., has a debt-equity ratio of 2.5. The firm"s weighted average cost of capital is 11 percent and it's pretax cost of debt is 9 percent. The rate is 22 percent. a. Cost of equity b. Unlevered cost of equity c. WACC if debt-equity ratio= 0.60 WACC if debt-equity ratio= 1.50