Hotel chain Hostales Vacaciones finances land purchases for new hotels. Its current cost of capital, as an all-equity company, is 13%. The firm is opening ten new hotels and is considering issuing debt at 9% for its financing needs. If it issues debt, its debt-to-equity ratio would be 0.5. The corporate tax rate is 32%.

What would be the company’s cost of equity with and without the consideration of taxes?

Answer rating: 100% (QA)

Without taxes Current cost of capital as allequity firm 13 Cost of new debt 9 Debttoequity rat... View the full answer