If it were unlevered, the overall firm beta for Wild Widgets Inc. (WWI) would be 1.7....

70.2K

Verified Solution

Question

Finance

If it were unlevered, the overall firm beta for Wild WidgetsInc. (WWI) would be 1.7. WWI has a target debt/equity ratio of 1.The expected return on the market is 0.08, and Treasury bills arecurrently selling to yield 0.06. WWI one-year bonds (with a facevalue of $1,000) carry an annual coupon of 2% and are selling for$925.52. The corporate tax rate is35%.(Round your answers to 2 decimalplaces before the percentage sign. (e.g., 10.23%))
a. WWI’s before-tax cost of debt is  %.
b. WWI’s cost of equity is  %.
c. WWI’s weighted average cost of capital is  %.

Answer & Explanation Solved by verified expert

3.8 Ratings (499 Votes)

Levered Beta Unlevered Beta x 1 1 Tax Rate x DebtEquity levered beta 17110351 levered beta 281 DA DED DA 17117 06296 Weight of equity 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

If it were unlevered, the overall firm beta for Wild WidgetsInc. (WWI) would be 1.7. WWI has a target debt/equity ratio of 1.The expected return on the market is 0.08, and Treasury bills arecurrently selling to yield 0.06. WWI one-year bonds (with a facevalue of $1,000) carry an annual coupon of 2% and are selling for$925.52. The corporate tax rate is35%.(Round your answers to 2 decimalplaces before the percentage sign. (e.g., 10.23%))a.WWI’s before-tax cost of debt is %.b.WWI’s cost of equity is %.c.WWI’s weighted average cost of capital is %.

a.	WWI’s before-tax cost of debt is %.
b.	WWI’s cost of equity is %.
c.	WWI’s weighted average cost of capital is %.