8:44 PM O ll 83 Answered: Here is the .. bartleby.com = bartleby E Q&A Sign In Business / Finance / Q&A Library / Here is the problem: F... Here is the problem: Famas's LLamas h... Famas's LLamas has a weighted average cost of capital of 7.9%. The company's cost of equity is 11% and its pretaxt cost of debt is 5.8%. The taxt rate is 25%. What is the company's target debt- equity ratio? Here is the solution: Here we have the WACC and need to find the debt-equity ratio of the company. Setting up the WACC equation, we find: WACC = .0790 =.11(E/M) + .058(D/)(1 – .25) Rearranging the equation, we find: .0790(V/E) = .11+.058(.75)(D/E) %3D Now we must realize that the V/E is just the equity multiplier, which is equal to:

8:44 PM O ll 83 Answered: Here is the .. bartleby.com = bartleby E Q&A Sign In Business / Finance / Q&A Library / Here is the problem: F... Here is the problem: Famas's LLamas h... Famas's LLamas has a weighted average cost of capital of 7.9%. The company's cost of equity is 11% and its pretaxt cost of debt is 5.8%. The taxt rate is 25%. What is the company's target debt- equity ratio? Here is the solution: Here we have the WACC and need to find the debt-equity ratio of the company. Setting up the WACC equation, we find: WACC = .0790 =.11(E/M) + .058(D/)(1 – .25) Rearranging the equation, we find: .0790(V/E) = .11+.058(.75)(D/E) %3D Now we must realize that the V/E is just the equity multiplier, which is equal to:

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter17: Financial Markets

Section: Chapter Questions

Problem 40P: Many retirement funds charge an administrative fee each year equal to 0.25% on managed assets....

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