Question
Asked Nov 7, 2019

wild flowers express has a debt equity ratio of .60. the pre tax cost of debt is 9% while the unlevered cost of capital is 14%. what is the cost of levered equity if the tax rate is 34%

check_circleExpert Solution
Step 1

Computation of levered equity cost:

Hence, the levered equity cost is 15.98%.

...
Amount
14%
9%
34%
Particulars
2 Unlevered cost of capital
3 Pretax cost
4 Rate of tax
Debt-equity ratio
Cost of equity
0.6
5
15.98%
6
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Amount 14% 9% 34% Particulars 2 Unlevered cost of capital 3 Pretax cost 4 Rate of tax Debt-equity ratio Cost of equity 0.6 5 15.98% 6

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