Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 19, Problem 22PS
Summary Introduction

To discuss: Whether the calculation is agreeable by Person X.

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Fama’s Llamas has a weighted average cost of capital of 8.4 percent. The company’s cost of equity is 11 percent, and its pretax cost of debt is 5.8 percent. The tax rate is 25 percent. What is the company’s target debt-equity ratio? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)
Fama’s Llamas has a weighted average cost of capital of 10.4 percent. The company’s cost of equity is 13 percent and its pretax cost of debt is 7.9 percent. The tax rate is 24 percent. What is the company's debt-equity ratio? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)   Debt-equity ratio:______?
Keziah Textiles, Inc. has a cost of equity of 10.8 percent. The company has an aftertax cost of debt of 5.1 percent, and the tax rate is 35 percent. If the company's debt–equity ratio is .80, what is the weighted average cost of capital?
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