3. A firm wants to create a weighted average cost of capital of 7.2 percent. The...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
3. A firm wants to create a weighted average cost of capital of 7.2 percent. The firm's cost of equity is 10 percent and its pre-tax cost of debt is 8 percent. The tax rate is 34 percent. What does the debt-equity ratio need to be for the firm to achieve its target WACC? 3. A firm wants to create a weighted average cost of capital of 7.2 percent. The firm's cost of equity is 10 percent and its pre-tax cost of debt is 8 percent. The tax rate is 34 percent. What does the debt-equity ratio need to be for the firm to achieve its target WACC?
Expert Answer:
Answer rating: 100% (QA)
To determine the debtequity ratio needed to achieve the target weighted average cost of capital WACC ... View the full answer
Related Book For
Cost Management Measuring Monitoring And Motivating Performance
ISBN: 9781118168875
2nd Canadian Edition
Authors: Leslie G. Eldenburg, Susan Wolcott, Liang Hsuan Chen, Gail Cook
Posted Date:
Students also viewed these finance questions
-
Ann Carter, Chief Financial Officer of Consolidated Electric Company (Con El), must make a recommendation to Con Els board of directors regarding the firms dividend policy. Con El owns two...
-
The beta for the equity in Fullsome Corporation is 0.95. The market risk premium is 7 per cent, and the risk-free rate is 4 per cent. Fullsome has a target debt/equity ratio of 25 per cent. Its cost...
-
Sheehan Corp. is forecasting an EPS of $3.00 for the coming year on its 500,000 outstanding shares of stock. Its capital budget is forecasted at $800,000, and it is committed to maintaining a $2.00...
-
Canton Company makes two types of cell phones. Handy is a thin, pocket-size cell phone that is easy to carry around. Action is a palm-size phone convenient to hold while the user is talking. During...
-
The 8-kg block A is attached to link AC and rests on the 12-kg block B. Knowing that the coefficient of static friction is 0.20 between all surfaces of contact and neglecting the mass of the link,...
-
What is an expert system? How might one be utilized in an audit engagement? What are the relative advantages and disadvantages of expert systems?
-
What happens to the difference between the carrying amount of bonds and the principal amount of the bonds over time?
-
Mark Barton owns a garage and is contemplating purchasing a tire retreading machine for $18,000. After estimating costs and revenues, Mark projects a net cash flow from the retreading machine of...
-
How was the P&G culture shaped? Using the four-culture typology (double-S cube) described in the powerpoint presentation linked in the resources, what type of culture do you think P&G was when Jager...
-
A work sheet for Juanita's Consulting is shown on the following page. There were no additional investments made by the owner during the month. REQUIRED 1. Prepare an income statement. 2. Prepare a...
-
Kiddie World uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available at the end of the year: Beginning...
-
In a high-profile criminal trial, the defendant alleges that their confession was coerced by law enforcement officers during interrogation. How might the court assess the admissibility of the...
-
Factors which might cause a reduction in management's assigned penalty are called: a. Last chances. b. Second chances. c. Mitigating circumstances. d. Discharge circumstances.
-
how to Evaluate Apple Inc.'s working capital management approach by determine if the company is conservative or aggressive in managing its current assets and liabilities. This analysis may involve...
-
The DD-AA model predicts that a permanent increase in foreign money demand will lead to an improvement in the domestic current account. True/False/Uncertain, explain and support your answer with ONE...
-
Marshall's concept of external economies and diseconomies refers to: a) Changes in output resulting from changes in input levels b) The effects of production on the environment c) The benefits or...
-
In this discussion, I want to cover the topic of technical skills like SQL in the workplace. Accountants, financial analysts, scientists, data analysts, and marketers are asked to have some technical...
-
Give codons for the following amino acids: (a) Th (b) Asp (c) Thr
-
BackCountry Hiking Company produces and sells specialty camping equipment nationally and internationally. Following is information about two divisions after exchange rate corrections: REQUIRED A....
-
Following is information for the Pyramid Company's three business segments located in Europe: Pyramid's applicable tax rate for the segments is 25%, and its weighted average cost of capital for each...
-
The Better Business Bureau (BBB), through its BBB Wise Giving Alliance, provides information on the Internet about charitable organizations in the United States and Canada (see give.org or go to...
-
A system, consisting of \(2 \mathrm{~mol}\) of \(\mathrm{N}_{2}, 5 \mathrm{~mol}\) of \(\mathrm{H}_{2}\) and \(2 \mathrm{~mol}\) of \(\mathrm{NH}_{3}\) initially, is undergoing the following...
-
A thermodynamic system (a) Is a definite quantity of matter (b) Is surrounded by a boundary (c) Can exchange energy with its surroundings (d) All of these.
-
The study of thermodynamics enables us to understand (a) Whether the transformation of energy is feasible or not (b) To what extent the transformation will take place (c) In which direction the...
Study smarter with the SolutionInn App