Williamsen GmbH has a debtequity ratio of 2.5. The firms weighted average cost of capital is 15

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Williamsen GmbH has a debt–equity ratio of 2.5. The firm’s weighted average cost of capital is 15 per cent, and its pre-tax cost of debt is 10 per cent. Williamsen is subject to a corporate tax rate of 35 per cent.

(a) What is Williamsen’s cost of equity capital?

(b) What is Williamsen’s unlevered cost of equity capital?

(c) What would Williamsen’s weighted average cost of capital be if the firm’s debt–equity ratio were 0.75? What if it were 1.5?

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