need help on c. and d. QUESTION FOUR ABC Food, Inc., has a weighted...
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need help on c. and d. QUESTION FOUR ABC Food, Inc., has a weighted average cost of capital of 10.2 percent. The company's cost of equity is 15 percent, and its pre- tax cost of debt is 6.9 percent. The tax rate is 35 percent. a) What is the company's target debt-equity ratio? (15 marks) b) Why do we use an after-tax figure for cost of debt but not for cost of equity? (3 marks) PCW, Inc., is all-equity-financed. The expected rate of return on the company's shares is 20 percent. c) What is the opportunity cost of capital for an average-risk PCW investment? (5 marks) d) Suppose the company issues debt, repurchases shares, and moves to a 50 percent debt-to-value ratio (D/V = 50). What will be the company's weighted-average cost of capital at the new capital structure? The borrowing rate is 5 percent and the tax rate is 35 percent. (D+E=V) (10 marks) [TOTAL: 33 MARKS]
need help on c. and d.
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