Dickson, Incorporated, has a debt-equity ratio of 2.85. The firm's weighted average cost of capital is 10 percent and its pretax cost of debt is 6 percent. The tax rate is 24 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What would the company's weighted average cost of capital be if the company's debt- equity ratio were .25 and 1.85? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of equity b. Unlevered cost of equity c. WACC if debt-equity ratio = 0.25 c. WACC if debt-equity ratio = 1.85 % % % %
Dickson, Incorporated, has a debt-equity ratio of 2.85. The firm's weighted average cost of capital is 10 percent and its pretax cost of debt is 6 percent. The tax rate is 24 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What would the company's weighted average cost of capital be if the company's debt- equity ratio were .25 and 1.85? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of equity b. Unlevered cost of equity c. WACC if debt-equity ratio = 0.25 c. WACC if debt-equity ratio = 1.85 % % % %
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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Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
![**Dickson, Incorporated** has a debt-equity ratio of 2.85. The firm’s weighted average cost of capital (WACC) is 10 percent, and its pretax cost of debt is 6 percent. The tax rate is 24 percent.
**Questions:**
**a.** What is the company’s cost of equity capital?
*(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)*
**b.** What is the company’s unlevered cost of equity capital?
*(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)*
**c.** What would the company’s weighted average cost of capital be if the company’s debt-equity ratio were .25 and 1.85?
*(Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)*
**Table for Answers:**
- **a. Cost of equity**: [ ] %
- **b. Unlevered cost of equity**: [ ] %
- **c. WACC if debt-equity ratio = 0.25**: [ ] %
- **c. WACC if debt-equity ratio = 1.85**: [ ] %](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff00761e5-6ea2-4b64-9c87-d0591240e351%2Fdce85940-13e6-4250-96dc-52f32eb35a25%2Fxznqgp_processed.png&w=3840&q=75)
Transcribed Image Text:**Dickson, Incorporated** has a debt-equity ratio of 2.85. The firm’s weighted average cost of capital (WACC) is 10 percent, and its pretax cost of debt is 6 percent. The tax rate is 24 percent.
**Questions:**
**a.** What is the company’s cost of equity capital?
*(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)*
**b.** What is the company’s unlevered cost of equity capital?
*(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)*
**c.** What would the company’s weighted average cost of capital be if the company’s debt-equity ratio were .25 and 1.85?
*(Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)*
**Table for Answers:**
- **a. Cost of equity**: [ ] %
- **b. Unlevered cost of equity**: [ ] %
- **c. WACC if debt-equity ratio = 0.25**: [ ] %
- **c. WACC if debt-equity ratio = 1.85**: [ ] %
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