Suppose Microsoft has no debt and a WACC of 8.7%. The average debt-to-value ratio for the software industry is 8.6%. What would be its cost of equity if it took on the average amount of debt for its industry at a cost of debt of 6.4%? The cost of equity is ☐ %. (Round to two decimal places.)

Suppose Microsoft has no debt and a WACC of 8.7%. The average debt-to-value ratio for the software industry is 8.6%. What would be its cost of equity if it took on the average amount of debt for its industry at a cost of debt of 6.4%? The cost of equity is ☐ %. (Round to two decimal places.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 8P

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Balance Sheet Regulations

A balance sheet is a financial statement that shows the position of a company's assets and liabilities on a specific date. The balance sheet is prepared after preparing the statement of profit and loss statement (income statement). The balance sheet and other financial statements differ in the sense that the balance sheet shows the financial position at any given point in time. In contrast, the other financial statements show the financial performance over a particular duration.

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Suppose Microsoft has no debt and a WACC of 8.7%. The average debt-to-value ratio for the
software industry is 8.6%. What would be its cost of equity if it took on the average amount of
debt for its industry at a cost of debt of 6.4%?
...
The cost of equity is ☐ %. (Round to two decimal places.)

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