Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. a company has a debt-to-equity ratio of 1/4 in ter

A company has a debt-to-equity ratio of 1/4 in terms of market values. Its equity beta...

90.2K

Verified Solution

Question

Finance

A company has a debt-to-equity ratio of 1/4 in terms of marketvalues. Its equity beta is 1.15 and its cost of debt is 3.5%. Itstax rate is expected to be 20%. Assume the risk-free rate of 3% andthe market risk premium of 7%. What is its weighted average cost ofcapital (WACC)?

Answer & Explanation Solved by verified expert
4.4 Ratings (842 Votes)
First we need to calculate the cost of equity Cost of equityRisk free rate BetaMarket risk premium Given that the risk free rate is 3 beta is 115 and market risk premium is 7    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

A company has a debt-to-equity ratio of 1/4 in terms of marketvalues. Its equity beta is 1.15 and its cost of debt is 3.5%. Itstax rate is expected to be 20%. Assume the risk-free rate of 3% andthe market risk premium of 7%. What is its weighted average cost ofcapital (WACC)?

Other questions asked by students

Q

Explain the difference between non-directional and directional hypotheses, and explain in which circumstances it is important...

Basic Math
Q

Optimization: a) You are attempting to use 1000 yards of fencing to make one rectangular pasture. What’s...

Basic Math
Q

True or false? True False  In cell membranes, cholesterol decreases membrane fluidity below the transition temperature, but increases membrane...

Biology
Q

1 15 You are travelling in a car during a thunder storm in order to...

Physics
Q

In a two dimensional motion of particle the particle moves from point A position vector...

Physics
Q

Given the quadratic function f x 3 x 6 2 3 what is the axis...

Geometry
Q

Select all of the right triangles.Triangle ABC with AB = 30, BC = 40, and...

Basic Math
Q

The distance that a free falling object falls is directly proportional to the square of...

Algebra
Q

Ryan trained for 5 hours yesterday He ran 16 miles and then biked 42 miles...

Algebra
Q

Stepfall Ltd had the following ratios at 31 December 2017 and 31 December 2016: 2017...

Accounting
Q

Required information The following selected data were taken from the accounting records of Metcalf Manufacturing....

Accounting
Q

To CAlm Air, $3861 in payment of account, including $39 discount for early payment. Reference...

Accounting