5Gaucho Services starts life with all-equity financing and a cost of equity of 13%. Suppose it refinances to the followingmarket-value capital structure:10pointseBookDebt (D)Equity (E)41%59%at D = 10.4%a. Use MM's proposition 2 to calculate the new cost of equity. Gaucho pays taxes at a marginal rate of T = 35%.b. Calculate Gaucho's after-tax weighted-average cost of capital.Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.Printa. Return on equityReferencesb. After-tax WACC%%

Part 2: Explanation:Step 1: Calculate the new cost of equity using MM's Proposition 2.MM's…

Answered: 5 Gaucho Services starts life with…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 7P

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