Gaucho Services starts life with all-equity financing and a cost of equity of 13%. Suppose it refinances to the following market value capital structure: Debt (D) Equity (E) 59% a. Return on equity b. After-tax WACC at p= 8.68 a. Use MM's proposition 2 to calculate the new cost of equity. Gaucho pays taxes at a marginal rate of 30%. b. Calculate Gaucho's after-tax weighted-average cost of capital Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.
Gaucho Services starts life with all-equity financing and a cost of equity of 13%. Suppose it refinances to the following market value capital structure: Debt (D) Equity (E) 59% a. Return on equity b. After-tax WACC at p= 8.68 a. Use MM's proposition 2 to calculate the new cost of equity. Gaucho pays taxes at a marginal rate of 30%. b. Calculate Gaucho's after-tax weighted-average cost of capital Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 7P
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