MM and Taxes Solar Industries has a debt-equity ratio of 1.25. Its WACC is 7.8 percent, and its cost of debt is 4.7 percent. The corporate tax rate is 21 percent. What is the company’s cost of equity capital? What is the company’s unlevered cost of equity capital? What would the cost of equity be if the debt-equity ratio were 2? What if it were 1? What if it were zero?
Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
Question 28:
MM and Taxes Solar Industries has a debt-equity ratio of 1.25. Its WACC is 7.8 percent, and
its cost of debt is 4.7 percent. The corporate tax rate is 21 percent.
- What is the company’s
cost of equity capital? - What is the company’s unlevered cost of equity capital?
- What would the cost of equity be if the debt-equity ratio were 2? What if it were 1? What if it were zero?
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