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Starset, Inc., has a target debt-equity ratio of 0.71. Its WACC is 11.5 percent, and the...

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Finance

Starset, Inc., has a target debt-equity ratio of 0.71. Its WACCis 11.5 percent, and the tax rate is 34 percent.

If the company's cost of equity is 16.5 percent, what is thepretax cost of debt?

If instead you know that the aftertax cost of debt is 5.9percent, what is the cost of equity?

Answer & Explanation Solved by verified expert
4.2 Ratings (815 Votes)
Given that debtequity071 Adding denominator to numerator in both the sides we get debtequityequity1711 Inverting both the sides we get equitydebtequity1171 This means that the weight of equity is 1171 Again debtequity071 Inverting both the sides we get equitydebt1071 Adding denominator to    See Answer
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Starset, Inc., has a target debt-equity ratio of 0.71. Its WACCis 11.5 percent, and the tax rate is 34 percent.If the company's cost of equity is 16.5 percent, what is thepretax cost of debt?If instead you know that the aftertax cost of debt is 5.9percent, what is the cost of equity?

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