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

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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)?

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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

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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)?

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

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