The Kanucks Ltd wants to have a weighted average cost of capital of 11 .25%. The firm has an after-tax cost of debt of 5% and a cost of equity of 13 %. What debt-equity ratio is needed for the firm to achieve the targeted weighted average cost of capital? Multiple Choice0.250.220.280.330.42

The Kanucks Ltd wants to have a weighted average cost of capital of 11 .25%. The firm has an after-tax cost of debt of 5% and a cost of equity of 13 %. What debt-equity ratio is needed for the firm to achieve the targeted weighted average cost of capital? Multiple Choice0.250.220.280.330.42

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

The Kanucks Ltd wants to have a
weighted average cost of capital of 11
.25%. The firm has an after-tax cost of
debt of 5% and a cost of equity of 13
%. What debt-equity ratio is needed
for the firm to achieve the targeted
weighted average cost of capital?
Multiple Choice0.250.220.280.330.42

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Step 1: Definition of WACC (Weighted Average Cost of Capital)

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Step 2: Computation of Weight of equity and weight of debt

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Step 3: Computation of the debt-equity ratio

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