Summit Pharmaceuticals has a cost of debt of 7.5 percent and an unlevered cost of capital...
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Summit Pharmaceuticals has a cost of debt of 7.5 percent and an unlevered cost of capital of 12.7 percent. Assuming a tax rate of 22 percent, what is the target debt-equity ratio if the targeted cost of equity is 14.5 percent? 1) What is the target debt-equity ratio if the targeted cost of equity is 14.5 percent? 2) What would be the company's WACC increase if it implements a D/E ratio of 1.00 and the tax rate increases to 25 percent? SHOW YOUR WORK Summit Pharmaceuticals has a cost of debt of 7.5 percent and an unlevered cost of capital of 12.7 percent. Assuming a tax rate of 22 percent, what is the target debt-equity ratio if the targeted cost of equity is 14.5 percent? 1) What is the target debt-equity ratio if the targeted cost of equity is 14.5 percent? 2) What would be the company's WACC increase if it implements a D/E ratio of 1.00 and the tax rate increases to 25 percent? SHOW YOUR WORK
Expert Answer:
Answer rating: 100% (QA)
According to MM Proposition II with tax k e k 0 k 0 k d DE 1T where k e levered cost of equity k 0 u... View the full answer
Related Book For
Financial Accounting An Integrated Statements Approach
ISBN: 978-0324312119
2nd Edition
Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren
Posted Date:
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