Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Ursala, Incorporated, has a target debt-equity ratio of .90. Its WACC is 8.2 percent, and
the tax rate is 22 percent.
a. If the company's cost of equity is 11 percent, what is its pretax cost of debt? (Do not
round intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
b. If instead you know that the aftertax cost of debt is 6.3 percent, what is the cost of
equity? (Do not round intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
Answer is complete but not entirely correct.
a. Cost of debt
b. Cost of equity
5.09 %
9.91
%
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Transcribed Image Text:Ursala, Incorporated, has a target debt-equity ratio of .90. Its WACC is 8.2 percent, and the tax rate is 22 percent. a. If the company's cost of equity is 11 percent, what is its pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If instead you know that the aftertax cost of debt is 6.3 percent, what is the cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. a. Cost of debt b. Cost of equity 5.09 % 9.91 %
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