Weston Industries has a debt-equity ratio of 1.4. Its WACC is
8.4 percent, and its cost...
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Finance
Weston Industries has a debt-equity ratio of 1.4. Its WACC is8.4 percent, and its cost of debt is 6.1 percent. The corporate taxrate is 21 percent.
a.
What is the company’s cost of equity capital? (Do notround intermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)
b.
What is thecompany’s unlevered cost of equity capital? (Do not roundintermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)
c-1.
What would the costof equity be if the debt-equity ratio were 2? (Do not roundintermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)
c-2.
What would the costof equity be if the debt-equity ratio were 1.0? (Do notround intermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)
c-3.
What would the costof equity be if the debt-equity ratio were zero? (Do notround intermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)
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Solution a Cost of Equity 1341 Working Notes debt equity ratio 140 Weight of Debt DV 14 1 14 1424 Weight of Equity EV 1 1 14 124 WACC EVKe DV 1 Tax rate Kd 84 1 24 x Ke 14 24 x 61 x 1 021 Ke 84 281108333 x 24 Ke 0134134 Ke134134 1341 b Unlevered cost of equity capital 957 Working Notes RS R0 R0RBBS1 Tc BS Debtequity ratio 140 RS is
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