NatNah, a builder of acoustic accessories, has no debt and an equity cost of capital of 14%. Suppose NatNah decides to increase its leverage to maintain a market debt-to-value ratio of 0.5. Suppose its debt cost of capital is 9% and its corporate tax rate is 37%. If NatNah's pre-tax WACC remains constant, what will be its (effective after- tax) WACC with the increase in leverage? The effective after-tax WACC will be 12.34 %. (Round to two decimal places.)

NatNah, a builder of acoustic accessories, has no debt and an equity cost of capital of 14%. Suppose NatNah decides to increase its leverage to maintain a market debt-to-value ratio of 0.5. Suppose its debt cost of capital is 9% and its corporate tax rate is 37%. If NatNah's pre-tax WACC remains constant, what will be its (effective after- tax) WACC with the increase in leverage? The effective after-tax WACC will be 12.34 %. (Round to two decimal places.)

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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