Look at our calculation of Big Oil's WACC in Section 13.4. a. Suppose Big Oil is excused

Question:

Look at our calculation of Big Oil's WACC in Section 13.4.

a. Suppose Big Oil is excused from paying taxes. What would be its WACC?

b. Now suppose that, after the tax rate has fallen to zero, Big Oil makes a large stock issue and uses the proceeds to pay off all its debt. What would be the cost of equity after the issue?

Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...