Fama’s Llamas has a WACC of 9.6 percent. The company’s cost of equity is 11.8 percent,...
Fama’s Llamas has a WACC of 9.6 percent. The company’s cost of equity is 11.8 percent, and its pretax cost of debt is 7.6 percent. The tax rate is 35 percent. What is the company’s target debt–equity ratio? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) Debt–equity ratio
Homework Answers
0.096 = w(0.076)(1 - 0.35) + (1 - w)(0.1180)
0.096 = 0.0494w + 0.1180 - 0.1180w
w = 0.3207
Weight of Debt = 0.3207
Weight of Equity = 1 - 0.3207 = 0.6793
Debt/Equity = 0.3207/0.6793
Debt/Equity = 0.47
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Fama’s Llamas has a WACC of 9.6 percent. The company’s cost of
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