Blitz Industries has a debt-equity ratio of 1.2. Its WACC is 7.4 percent, and its cost of debt is 5.1 percent. The corporate tax rate is 22 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.)

Question

Blitz Industries has a debt-equity ratio of 1.2. Its WACC is 7.4 percent, and its cost of debt is 5.1 percent. The corporate tax rate is 22 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.)

Expert Answer

Want to see the step-by-step answer?

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times may vary by subject and question complexity. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers.
Tagged in
Business
Finance

Capital Structure

Related Finance Q&A

Find answers to questions asked by students like you.

Q: Babbalu Inc. just paid a dividend of $1 per share. Babbalu expects to increase its annual dividend b...

A: Given that the dividend just paid is $1.The dividend growth is expected to be 20% per year for next ...

Q: Debbie invests $5,500 in her IRA account each year for 40 years.  If she earns 7% return annually on...

A: We need to use the concept of time value of money to solve the question. According to the concept of...

Q: 12. You are considering the purchase of a tract of timber land today as an investment. Last years ti...

A: Calculate the current price of the land as follows:

Q: I have 2 questions that I need help with.   1.Problem 8-15 Value of Dividends and Future Price (LG8-...

A: 1. Computation of value of stock:The value of the stock is $79.43. Excel spread sheet:

Q: 6:04 IMG_0741.jpg X Given the soaring price of gasoline, Ford is considering introducing a new produ...

A: To determine the incremental annual cash flow from operations, we need to first compute the contribu...

Q: Please solve #2 and #6   A corporation creates a sinking fund in order to have $860,000 to replace s...

A: Part 2 to 6:Excel Spreadsheet:

Q: H M 9Ro-a s re raa troese db ato a6411 6alo 5a,1908ecrcase 6. Lonnie needs extra money to buy a truc...

A: Calculate the interest amount as follows:

Q: A proposed new project has projected sales of $222,000, costs of $96,500, and depreciation of $26,10...

A: The computation of operating cash flow is as follows:

Q: What are the three primary methods used to determine interest charges on an unpaid credit balance?  ...

A: The three primary methods used to determine interest charges on an unpaid credit balance is,Average ...

Q: What will the total amount of an account be where I deposited $1000 per year earning 4 % annually fo...

A: The accumulated value of a series of payment can defined as the sum of future value of all cash flow...

Q: One-year Treasury bills currently earn 1.75 percent. You expect that one year from now, 1-year Treas...

A: Calculate the current rate on year 2 as follows:

Q: How many years (and months) will it take $2 million to grow to $4.40 million with an annual interest...

A: Calculation of NPER:Answer:Number of years (and months) it will takes is 10 years and 2 months.Excel...

Q: How much money will you have in 2 years if you deposited $5500 into an account 4 years ago earning s...

A: Calculate the future value as follows:

Q: Thrice Corp. uses no debt. The weighted average cost of capital is 4.8 percent. If the current marke...

A: Earning before interest and taxes are calculated to determine the earnings of the company before tax...

Q: The next dividend payment by Grenier, Inc., will be $1.64 per share. The dividends are anticipated t...

A: a) Dividend yield is the annual dividend paid relative to its current price. It can be calculated as...

Q: Calculate the price of a 5.6 percent coupon bond with 10 years left to maturity and a market interes...

A: Face Value of Bond = $1,000Coupon Rate = 5.6%Type of coupon payment = SemiannualNumber of Coupon pay...

Q: Q2)   Suppose the current one-year euro swap rate y0[0, 1] is 1.74%, and the two-yearand three-year ...

A: Meaning of Euro swap rate:A swap rate is the fixed rate that a receiver demands, in exchange for unc...

Q: Scenario Probability Stock fund Rate of Return Bond fund Rate of Return Severe recession 0.05 -30 ...

A: Computation of variance and standard deviation of stock fund:

Q: Ben buys a house. He obtains a $220,000, 30-year mortgage at 5%. Annual property taxes $1,800, prope...

A: Calculate the monthly instalments as follows:

Q: Consider a firm with an EBIT of $500,000. The firm finances its assets with $2,000,000 debt (costing...

A: Calculate the change in EPS as follows:

Q: Goatboy Corporation bonds are currently priced at $1182.56 and have 25 years until maturity. The bon...

A: Following informations are given in the question:

Q: Please show all equations and work as needed. Make the correct answer clear. If possible, please typ...

A: Calculation of WACC of firm after leverage (effective after-tax):Answer:WACC after leverage is 15.95...

Q: Your company is currently considering two investment projects. Each project requires an upfront expe...

A: Payback period can be defined as the time length required by the project to recover the total cash o...

Q: O'Leary, Inc., is expected to maintain a constant 5.2 percent growth rate in its dividend indefinite...

A: Required rate of return on the stock is the sum of the company’s dividend yield and capital gains yi...

Q: A five-year project has an initial fixed asset investment of $280,000, an initial NWC investment of ...

A: Equivalent Annual Cost (EAC) is the cost of owning an asset. It is used as an important tool for eva...

Q: I am currently working on some practice problems for my finance class and am unsure how to set up an...

A: As per the rule, I will do the first three parts. Since 1a is done will do 1b, 2 a and b.1b) Standar...

Q: I f Topic 2: Linear Equations AT 9. A passbook savings account has a rate of 6%, Find the effective ...

A: Calculate the effective annual rate as follows:

Q: Rank the following three stocks by their risk-return relationship, best to worst. Night Ryder has an...

A: Volatility can be described as the method to evaluate the spread of returns associated with an asset...

Q: Calculate the amount of money that Emily needs to set aside from her bonus this year to cover the do...

A: We need to use the concept of time value of money to solve the question. According to the concept of...

Q: Guthrie Enterprises needs someone to supply it with 142,000 cartons of machine screwsper year to sup...

A: a) To calculate the NPV of the project, first depreciation, after tax salvage value is determined an...

Q: A stock with a beta of 1.5 has an expected rate of return of 20%. If the market return this year tur...

A: Calculation of rate of return on stock:Rate of return on the stock is 3.5%.The market return is 11% ...

Q: Please show all equations and work as needed. Make the correct answer clear. If possible, please typ...

A: Answer:The firm will raise $0 and will own ownership of 30.8% in firm.The firm will get nothing in t...

Q: Company ABC just sold their most profitable division for $100 million in cash. The company has a mar...

A: A)(i) Initial Investment = $100 MillionPayoff is given for the next year with different probabilitie...

Q: What would the average tax rate for a person who paid taxes of $6,435 on taxable income of $40,780?

A: Calculation of average tax rate:Answer: Average tax rate is 15.78%Meaning: Average tax rate is calcu...

Q: 11. A company just paid a dividend of $4 and anticipates increasing its dividend at a constant rate ...

A: Calculate the required rate of return as follows:

Q: Susan Jones has a job as a pharmacist earning $55,000 per year, and she is deciding whether to take ...

A: Meaning:Expected net present value is calculated as the sum of product of net present values under d...

Q: Produce a projected capital budgeting cash flow statement for the Sneaker 2013 project Answer the fo...

A: To calculate net cash flows, one needs to ascertain net income. Following steps have been attached t...

Q: MMS Corp borrows $1,650,000 today for a new building. The loan is an equal principal payment loan wi...

A: Computation of payment due amount:Hence, the due amount is $20,219.95 or $20,220.

Q: Consider an asset that costs $665,000 and is depreciated straight-line to zero over its nine-year ta...

A: Calculation of after cash flow from sale of asset:The after-cash flow from sale of asset is $170,296...

Q: The Data General Company is expected to pay an annual dividend of $2.53 at the end of the year. Thei...

A: Computation of required rate of return:Required rate of return is 15.81%.Excel spread sheet:

Q: #60

A: Calculation of future value of payments:Answer:Future value of payments is $185,360.20; the policy i...

Q: I am currently working on some financial problems and accidentally asked more questions than permitt...

A: To calculate the expected return, first the weights of each stock in the portfolio is calculated as ...

Q: discuss the rationale behind the introduction of negative interest rate policies across economies wo...

A: “Hey, since there are multiple questions posted, we will answer first question. If you want any spec...

Q: D. 7.69 percent E 8.26 percent 16. An increase in which of the following would increase the price of...

A: A call option is direct proportional to the stock volatility in the market. if the volatility increa...

Q: Fran Powers created following budget and reported actual spending listed. Calculate the variance for...

A: Variance:The variance can be defined as the anticipation of the squared unconventionality of a rando...

Q: Paul and Sandy Moede signed an $8000 note at Citizen's Bank. Citizen's charges a 6.50% discount rate...

A: Computation of effective rate of interest:Hence, the effective rate of interest is 6.87%.

Q: You purchase a home and secure a 30 year equal payment loan for $200,000 at a interest rate of 5.25%...

A: The number of months to stay will be around 6 months.

Q: Executives at Microsoft are interested to get into the drone delivery business. Since it would take ...

A: (a) Calculation of present values of two options:Answer:Net present values of both options are $40 m...

Q: Suppose you have good credit and can get a 30 year mortgage for $100,000 at 5%.  What is your monthl...

A: Amount of Mortgage (pv) = $100,000Time Period = 30 yearsNumber of Payments in a Period = 12Total Num...

Q: You are considering the purchase of real estate that will provide perpetual income that should avera...

A: Calculate the rate of return on market portfolio as follows:Rate of return on market portfolio is sa...