Question 24 (1 point) A company wants to achieve a weighted average cost of capital of...

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Question 24 (1 point) A company wants to achieve a weighted average cost of capital of 10.36%. The company has a before-tax c

Answer 1

Answer #1

Solution:

WACC=Cost of equity*Weight of equity+After tax cost of debt*Weight of debt

After tax cost of debt=Cost of debt(1-tax rate)

=8.46%(1-0.30)=5.922%

Let thw weight of equity is X,thus weight of debt shall be 1-X.Now putting the value,to find X

10.36%=12.26*X+5.922%*(1-X)

10.36%=0.1226X+5.922-0.05922

10.36-5.922=0.06338X

X=4.438/0.06338

=70.02%

Weight of debt=1-0.7002=0.2988 or 29.98%

Now,debt to equity ratio is calculated as follow:

=Debt/Equity

=0.2988/0.7002

=0.4281

Thus correct answer is 0.428

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Answer 2

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