Assume that Modigliani and Miller’s perfect capital markets assumptions hold and there are no corporate taxes. A company’s cost of debt is 10%, its cost of equity is 25% and its debt-to-equity ratio is 25%.

Calculate the company’s weighted average cost of capital.Show your calculations.

How would the cost of equity change if the company’s debt-to-equity ratio rises to 50%? Show your calculations.

Answer rating: 100% (QA)

To calculate the companys weighted average cost of capital WACC we need to determine the weighted av... View the full answer