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5 Gaucho Services starts life with all-equity financing and a cost of equity of 13%. Suppose it refinances to the following market-value capital structure: 10 points eBook Debt (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. Print a. Return on equity References b. After-tax WACC % %

5 Gaucho Services starts life with all-equity financing and a cost of equity of 13%. Suppose it refinances to the following market-value capital structure: 10 points eBook Debt (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. Print a. Return on equity References b. After-tax WACC % %

Essentials Of Investments
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
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5 Gaucho Services starts life with all-equity financing and a cost of equity of 13%. Suppose it refinances to the following market-value capital structure: 10 points eBook Debt (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. Print a. Return on equity References b. After-tax WACC % %
Transcribed Image Text:5 Gaucho Services starts life with all-equity financing and a cost of equity of 13%. Suppose it refinances to the following market-value capital structure: 10 points eBook Debt (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. Print a. Return on equity References b. After-tax WACC % %
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