A company has a debt-to-equity ratio of 1/4 in terms of market values. Its equity beta...

90.2K

Verified Solution

Question

Finance

A company has a debt-to-equity ratio of 1/4 in terms of marketvalues. Its equity beta is 1.15 and its cost of debt is 3.5%. Itstax rate is expected to be 20%. Assume the risk-free rate of 3% andthe market risk premium of 7%. What is its weighted average cost ofcapital (WACC)?

Answer & Explanation Solved by verified expert

4.4 Ratings (842 Votes)

First we need to calculate the cost of equity Cost of equityRisk free rate BetaMarket risk premium Given that the risk free rate is 3 beta is 115 and market risk premium is 7 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

A company has a debt-to-equity ratio of 1/4 in terms of marketvalues. Its equity beta is 1.15 and its cost of debt is 3.5%. Itstax rate is expected to be 20%. Assume the risk-free rate of 3% andthe market risk premium of 7%. What is its weighted average cost ofcapital (WACC)?

A company has a debt-to-equity ratio of 1/4 in terms of market values. Its equity beta...

90.2K

Verified Solution

Question

Finance

A company has a debt-to-equity ratio of 1/4 in terms of marketvalues. Its equity beta is 1.15 and its cost of debt is 3.5%. Itstax rate is expected to be 20%. Assume the risk-free rate of 3% andthe market risk premium of 7%. What is its weighted average cost ofcapital (WACC)?

Answer & Explanation Solved by verified expert

Get Answers to Unlimited Questions

Membership Benefits:

Transcribed Image Text

Other questions asked by students

Three years ago, you bought a 12% bond that had 7 years to maturity and a...

58. In cases where members of two species produce an offspring but the offspring is sterile,...

Three balanced 3-phase loads are connected in parallel. Load 1 is Y-connected with an impedance of...

Conditional Probability Problem: An urn contains 5 red balls, 4 green balls, and 4 yellow balls...

block of mass m 1 5 kg is kept in place on a rough ramp...

Use the information provided to write the equation of the circle. Center (-3,-10) ...

Describe the function f(x) = 5(1/3)^x.O It is an exponential decay function with a base...

For 0 find 0 necessary to prove lim 9x 30 15 X 5 0 0...

The volume of a gas V held at a constant temperature in a closed container...

Exercise 12-4 Evaluating a Special Order LO124 Imperial Jewelers is considering a special order for...

Exercise 13-35 (Algorithmic) (LO. 6, 9) Andrew owns land (adjusted basis of $132,100) that he...

Kyle, a single taxpayer, worked as a freelance software engineer for the first three months...