sBraxton Corp. currently has one million shares outstanding but no debt. If needed,however, the company can borrow at 6.2 percent interest. The company's WACC iscurrently 8 percent and the tax rate is 35 percent.a. What is the company's cost of equity? (Do not round intermediate calculations.Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)Cost of equityb. If the firm converts to 20 percent debt, what will its cost of equity be? (Do not roundintermediate calculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)Cost of equityc. If the firm converts to 50 percent debt, what will its cost of equity be? (Do not roundintermediate calculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)Cost of equityd-1 If the firm converts to 20 percent debt, what is the company's WACC? (Do not roundintermediate calculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)WACC%WACC%%%d-2If the firm converts to 50 percent debt, what is the company's WACC? (Do not roundintermediate calculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)%

After tax cost of debt = Pretax cost of debt * (1 - tax rate)Weighted average cost of capital= After…

Braxton Corp. currently has one million shares outstanding but no debt. If needed, however, the company can borrow at 6.2 percent interest. The company's WACC is currently 8 percent and the tax rate is 35 percent. a. What is the company's cost of equity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity b. If the firm converts to 20 percent debt, what will its cost of equity be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity % %

Braxton Corp. currently has one million shares outstanding but no debt. If needed, however, the company can borrow at 6.2 percent interest. The company's WACC is currently 8 percent and the tax rate is 35 percent. a. What is the company's cost of equity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity b. If the firm converts to 20 percent debt, what will its cost of equity be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity % %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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