Dickson, Inc., has a debt-equity ratio of 2.5. The firm’s weighted average cost of capital is 11...

90.2K

Verified Solution

Question

Finance

Dickson, Inc., has adebt-equity ratio of 2.5. The firm’s weighted average cost ofcapital is 11 percent and its pretax cost of debt is 9 percent. Thetax rate is 22 percent.

a. What is thecompany’s cost of equity capital? (Do not roundintermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)
b. What is thecompany’s unlevered cost of equity capital? (Do not roundintermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)
c.
What would the company’s weighted average cost of capital be ifthe company's debt-equity ratio were .60 and 1.50? (Do notround intermediate calculations and enter your answers as a percentrounded to 2 decimal places, e.g., 32.16.)
a. Cost ofequity %
b. Unleveredcost of equity %
c. WACC ifdebt-equity ratio = 0.60 %
WACC ifdebt-equity ratio = 1.50 %

Answer & Explanation Solved by verified expert

3.8 Ratings (632 Votes)

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: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Dickson, Inc., has adebt-equity ratio of 2.5. The firm’s weighted average cost ofcapital is 11 percent and its pretax cost of debt is 9 percent. Thetax rate is 22 percent. a.What is thecompany’s cost of equity capital? (Do not roundintermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)b.What is thecompany’s unlevered cost of equity capital? (Do not roundintermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)c.What would the company’s weighted average cost of capital be ifthe company's debt-equity ratio were .60 and 1.50? (Do notround intermediate calculations and enter your answers as a percentrounded to 2 decimal places, e.g., 32.16.)a.Cost ofequity%b.Unleveredcost of equity%c.WACC ifdebt-equity ratio = 0.60%WACC ifdebt-equity ratio = 1.50%