Garcia Company has no debt. Its cost of capital is 10.8 percent. Suppose the company converts to a debt-equity ratio of 1. The interest rate on the debt is 7.9 percent. Ignore taxes for this problem. What is the company’s new cost of equity? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. What is its new WACC? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Garcia Company has no debt. Its cost of capital is 10.8 percent. Suppose the company converts to a debt-equity ratio of 1. The interest rate on the debt is 7.9 percent. Ignore taxes for this problem. What is the company’s new cost of equity? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. What is its new WACC? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
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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Garcia Company has no debt. Its cost of capital is 10.8 percent. Suppose the company converts to a debt-equity ratio of 1. The interest rate on the debt is 7.9 percent. Ignore taxes for this problem.
-
What is the company’s new
cost of equity ?Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
-
What is its new WACC?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
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