Fama's Llamas has a weighted average cost of capital of 10 percent. The company's cost of equity is 14 percent and its pretax cost of debt is 7.5 percent. The tax rate is 25 percent. What is the company's debt-equity ratio?

Fama's Llamas has a weighted average cost of capital of 10 percent. The company's cost of equity is 14 percent and its pretax cost of debt is 7.5 percent. The tax rate is 25 percent. What is the company's debt-equity ratio?

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

Fama's Llamas has a weighted average cost of
capital of 10 percent. The company's cost of
equity is 14 percent and its pretax cost of debt
is 7.5 percent. The tax rate is 25 percent. What
is the company's debt-equity ratio?

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