D R = E P 0 gP %% A₁ = 0 (1+5) 0 = 0.60(1+0.04) 0.624 Welling Inc. has a target debt - equity ratio of 85. Its WACC is 9.9%, and the tax rate is 35%. a. [1 marks] If Welling's cost of equity is 14%, what is its pre-tax cost of debt? b. [2 marks] If instead you know that the after-tax cost of debt is 6.8%, what is the cost of equity? c. [2 mark] If preferred equity has a same amount as debt, with 8% cost, what is debts pre-tax Cost
D R = E P 0 gP %% A₁ = 0 (1+5) 0 = 0.60(1+0.04) 0.624 Welling Inc. has a target debt - equity ratio of 85. Its WACC is 9.9%, and the tax rate is 35%. a. [1 marks] If Welling's cost of equity is 14%, what is its pre-tax cost of debt? b. [2 marks] If instead you know that the after-tax cost of debt is 6.8%, what is the cost of equity? c. [2 mark] If preferred equity has a same amount as debt, with 8% cost, what is debts pre-tax Cost
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
![D
R =
E P
0
gP %%
A₁ = 0 (1+5)
0
= 0.60(1+0.04)
0.624
Welling Inc. has a target debt - equity ratio of 85. Its WACC is 9.9%, and the tax rate is 35%.
a. [1 marks] If Welling's cost of equity is 14%, what is its pre-tax cost of debt?
b. [2 marks] If instead you know that the after-tax cost of debt is 6.8%, what is the cost of equity?
c. [2 mark] If preferred equity has a same amount as debt, with 8% cost, what is debts pre-tax Cost](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdc9e820c-0d10-4be7-97be-0211ed0ba4f3%2F2f65cd32-2a0c-40dc-836a-0bc56a53c596%2F9e0vj1s_processed.jpeg&w=3840&q=75)
Transcribed Image Text:D
R =
E P
0
gP %%
A₁ = 0 (1+5)
0
= 0.60(1+0.04)
0.624
Welling Inc. has a target debt - equity ratio of 85. Its WACC is 9.9%, and the tax rate is 35%.
a. [1 marks] If Welling's cost of equity is 14%, what is its pre-tax cost of debt?
b. [2 marks] If instead you know that the after-tax cost of debt is 6.8%, what is the cost of equity?
c. [2 mark] If preferred equity has a same amount as debt, with 8% cost, what is debts pre-tax Cost
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