You are trying to estimate the cost of equity for a company that you are valuing. You
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Question:
You are trying to estimate the cost of equity for a company that you are valuing. You know that the industry's cost of equity is 7.62%. The industry uses 83% equity and 17% debt on average in its capital structure. The industry has a cost of debt of 5.25% and has a tax rate of 19.5%. Your company has a capital structure of 60% equity and 40% debt. Your cost of debt is 6.2% and you have a tax rate of 25%.
What is your cost of equity? (Hint...This one has a little trick. You have to find D/E using the given information.)
(use function Ksl = Ksu + D/E *(1 - T)*(Ksu - Kd) or WACC = We*Ksl + Wd*Kd*(1 - T)
Related Book For
Intermediate Financial Management
ISBN: 9780357516669
14th Edition
Authors: Eugene F Brigham, Phillip R Daves
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