Finding the Target Capital Structure [LO3] Fama's Llamas has a weighted average cost of capital of 8.9 percent. The company's cost of equity is 12 percent, and its pretax cost of debt is 7.9 percent. The tax rate is 35 percent. What is the company's target debt-equity ratio?
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
![Finding the Target Capital Structure [LO3] Fama's Llamas has a weighted
average cost of capital of 8.9 percent. The company's cost of equity is 12 percent,
and its pretax cost of debt is 7.9 percent. The tax rate is 35 percent. What is the
company's target debt-equity ratio?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2ae129fe-1eea-49c8-be75-f044c2ee126e%2F25bcf271-1afe-48c4-b928-1b8305efedc8%2Fu3wwlgc_processed.png&w=3840&q=75)
Step by step
Solved in 2 steps
8.9= 12X+5.135-5.135X
X= (3.765/6.875)= .547635.
There are some problem as below:
12X-5.135X should be 6.865
So X= (3.765/6.865) ?
by Bartleby Expert
