Question

Citee Corp. has no debt but can borrow at 6.7 percent. The firm's WACC is currently 9.3 percent, and the tax rate is 23 percent. C. 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 25 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.) If the firm converts to 55 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 25 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 55 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.) a. Cost of equity Cost of equity Cost of equity ib. 9 of 10

Answer 1

- Ams a Ke (cost of Equity) = WACC = 9.3 Equity % firm since it is all Ke = kat (ka-kj) Debt Cl-taxrate) Equity ka = unserered Cost of Equity - 0.093+(0.093 -0.067)*(0.25)* C1-0-23) (0.75) 0.09967 = 9.97% ke = kat(ka - kd) (2) C1-tax rate) - 0.093+ (0.093 -0.067)*(:52* C0:23) 0.45) = 0.11746 = 11.75% WACC Particulars Equity weight 0.75 Cost 9.97% weighted cost 0.074775 Debt 0.25 S. 159% 0.0128975 010876 8.77%

d-2 Porticulars weight. 0.45 Cast 11.75% weighted cost 0.052875 Equity Debt 0.55 5.159% 0.0283745 0.08125 = 8.12 %
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