Hatter, Inc., has equity with a market value of $22.5 million and debt with a market value
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Question:
Hatter, Inc., has equity with a market value of $22.5 million and debt with a market value of $6.75 million. The cost of debt is 9 percent per year. Treasury bills that mature in one year yield 5 percent per year, and the expected return on the market portfolio over the next year is 12 percent. The beta of the company's equity is 1.1. The firm pays no taxes.
a.What is the company's debtequity ratio? (Do not round calculations, 2 decimals)
b.What is the company's weighted average cost of capital? (Do not round calculations, 2 decimals)
c.What is the cost of capital for an otherwise identical all-equity firm? (Do not round calculations, 2 decimals)
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