Blitz Industries has a debt-equity ratio of 1.7. Its WACC is 8.1 percent, and its cost of debt is 5.7 percent. The corporate tax rate is 23 percent. a.What is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)b.What is the company’s unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)c-1.What would the cost of equity be if the debt-equity ratio were 2? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)c-2.What would the cost of equity be if the debt-equity ratio were 1.0? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)c-3.What would the cost of equity be if the debt-equity ratio were zero? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a.Cost of equity %b.Unlevered cost of equity %c-1.Cost of equity %c-2.Cost of equity %c-3.Cost of equity %

Data given : Debt-equity ratio = 1.7:1 WACC = 8.1% Cost of debt = 5.7% Corporate tax rate = 23%

Answered: Blitz Industries has a debt-equity…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 4P

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Blitz Industries has a debt-equity ratio of 1.7. Its WACC is 8.1 percent, and its cost of debt is 5.7 percent. The corporate tax rate is 23 percent.

a.	What is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b.	What is the company’s unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c-1.	What would the cost of equity be if the debt-equity ratio were 2? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c-2.	What would the cost of equity be if the debt-equity ratio were 1.0? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c-3.	What would the cost of equity be if the debt-equity ratio were zero? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

a.	Cost of equity	%
b.	Unlevered cost of equity	%
c-1.	Cost of equity	%
c-2.	Cost of equity	%
c-3.	Cost of equity	%

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