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If it were unlevered, the overall firm beta for Wild Widgets Inc. (WWI) would be 1.7....

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Finance

If it were unlevered, the overall firm beta for Wild WidgetsInc. (WWI) would be 1.7. WWI has a target debt/equity ratio of 1.The expected return on the market is 0.08, and Treasury bills arecurrently selling to yield 0.06. WWI one-year bonds (with a facevalue of $1,000) carry an annual coupon of 2% and are selling for$925.52. The corporate tax rate is35%.(Round your answers to 2 decimalplaces before the percentage sign. (e.g., 10.23%))

a.WWI’s before-tax cost of debt is  %.
b.WWI’s cost of equity is  %.
c.WWI’s weighted average cost of capital is  %.

Answer & Explanation Solved by verified expert
3.8 Ratings (499 Votes)
Levered Beta Unlevered Beta x 1 1 Tax Rate x DebtEquity levered beta 17110351 levered beta 281 DA DED DA 17117 06296 Weight of equity    See Answer
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If it were unlevered, the overall firm beta for Wild WidgetsInc. (WWI) would be 1.7. WWI has a target debt/equity ratio of 1.The expected return on the market is 0.08, and Treasury bills arecurrently selling to yield 0.06. WWI one-year bonds (with a facevalue of $1,000) carry an annual coupon of 2% and are selling for$925.52. The corporate tax rate is35%.(Round your answers to 2 decimalplaces before the percentage sign. (e.g., 10.23%))a.WWI’s before-tax cost of debt is  %.b.WWI’s cost of equity is  %.c.WWI’s weighted average cost of capital is  %.

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