Ursala, Incorporated, has a target debt-equity ratio of 65. Its WACC is 9.3 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? Note: 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 5.8 percent, what is the cost of equity? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Cost of debt b. Cost of equity 41.15% 9.95%
Ursala, Incorporated, has a target debt-equity ratio of 65. Its WACC is 9.3 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? Note: 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 5.8 percent, what is the cost of equity? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Cost of debt b. Cost of equity 41.15% 9.95%
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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Transcribed Image Text:Ursala, Incorporated, has a target debt-equity ratio of 65. Its WACC is 9.3 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?
Note: 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 5.8 percent, what is the cost of equity?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
a. Cost of debt
b. Cost of equity
41.15%
9.95 %
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