A firm wants to create a WACC of 11.4%. The firm's cost of equity is 14.7% and the pre- tax cost of debt is 7.5%. The tax rate is 34%. What does its target debt ratio need to be for the firm to achieve its target WACC of 11.4%? a. 35.35% b. 33.85% c. 53.88% d. 46.12%

A firm wants to create a WACC of 11.4%. The firm's cost of equity is 14.7% and the pre- tax cost of debt is 7.5%. The tax rate is 34%. What does its target debt ratio need to be for the firm to achieve its target WACC of 11.4%? a. 35.35% b. 33.85% c. 53.88% d. 46.12%

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter14: Security Structures And Determining Enterprise Values

Section: Chapter Questions

Problem 10EP

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Question

100%

A firm wants to create a WACC of 11.4%. The firm's cost of equity is 14.7% and the pre-
tax cost of debt is 7.5%. The tax rate is 34%. What does its target debt ratio need to be
for the firm to achieve its target WACC of 11.4%?
a. 35.35%
b. 33.85%
c. 53.88%
d. 46.12%

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