Question

Your firm is financed​ 100% with equity and has a cost of equity capital of 15​%....

Your firm is financed​ 100% with equity and has a cost of equity capital of 15​%. You are considering your first debt​ issue, which would change your capital structure to 34​% debt and 66​% equity. If your cost of debt is 7​%, what will be your new cost of​ equity? Assume no change in your​ firm's WACC due to the change in capital structures.

0 0
Add a comment Improve this question Transcribed image text
Answer #1

Wd X Kd + We X Ke WACC 15.00% = 0.34 x 7.00%+0.66 xKe 0.66 x ke 0.1262 ke 19.12% 19.12% Cost of equity=

Add a comment
Know the answer?
Add Answer to:
Your firm is financed​ 100% with equity and has a cost of equity capital of 15​%....
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • Your firm is financed​ 100% with equity and has a cost of equity capital of 13%....

    Your firm is financed​ 100% with equity and has a cost of equity capital of 13%. You are considering your first debt​ issue, which would change your capital structure to 34​% debt and 66​% equity. If your cost of debt is 6%, what will be your new cost of​ equity? Assume no change in your​ firm's WACC due to the change in capital structures.

  • Hector Enterprises is currently financed with all equity, and its cost of equity capital is 15% debt, and using the mon...

    Hector Enterprises is currently financed with all equity, and its cost of equity capital is 15% debt, and using the money raised through the debt issue to repurchase some of the outstanding shares of common stock. Assume perfect markets A. Suppose Hector issues debt to the point that its debt-equity ratio is .50 What would be Hector's new cost of equity capital? Hector is considering issuing The debt would then have a market yield of 5%.

  • 6. 6: The Cost of Capital: Weighted Average Cost of Capital The Cost of Capital: Weighted...

    6. 6: The Cost of Capital: Weighted Average Cost of Capital The Cost of Capital: Weighted Average Cost of Capital The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have...

  • Determining the cost of Capital: Weighted Average Cost of Capital The firm's target capital structure is...

    Determining the cost of Capital: Weighted Average Cost of Capital The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained...

  • The Cost of Capital: Weighted Average Cost of Capital The firm's target capital structure is the...

    The Cost of Capital: Weighted Average Cost of Capital The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings...

  • Determining the Cost of Capital: Weighted Average Cost of Capital The firm's target capital structure is...

    Determining the Cost of Capital: Weighted Average Cost of Capital The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained...

  • 1.A firm has a capital structure that is 30% Debt, and 70% equity. Its YTM on...

    1.A firm has a capital structure that is 30% Debt, and 70% equity. Its YTM on current bonds is 9%, and its tax rate is 25%. If the WACC is 10.5%, what is the cost of equity? 2.A firm has a 30% tax rate, and a 3% cost to issue new common stock. It has determined the optimal capital structure as shown in the table below. What is the firm's cost of capital? Type of Capital Capital Structure Cost of...

  • Keep the Highest: /2 Attempts: 6. 6: The Cost of Capital: Weighted Average Cost of Capital...

    Keep the Highest: /2 Attempts: 6. 6: The Cost of Capital: Weighted Average Cost of Capital The Cost of Capital: Weighted Average Cost of Capital The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If...

  • Globex Corp. is an all-equity firm, and it has a beta of 1. It is considering...

    Globex Corp. is an all-equity firm, and it has a beta of 1. It is considering changing its capital structure to 65% equity and 35% debt. The firm’s cost of debt will be 10%, and it will face a tax rate of 25%. What will Globex Corp.’s beta be if it decides to make this change in its capital structure? a)1.40 b)1.47 c)1.26 d)1.54 US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current...

  • The current value of a firm is 838,300 dollars and it is 100% equity financed. The...

    The current value of a firm is 838,300 dollars and it is 100% equity financed. The firm is considering restructuring so that it is 80% debt financed. If the firm's corporate tax rate is 0.8, the typical personal tax rate of an investor in the firm's stock is 0.2, and the typical tax rate for an investor in the firm's debt is 0.2 what will be the new value of the firm under the MM theory with corporate taxes but...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT