Ursala, Incorporated, has a target debt-equity ratio of 1.10. Its WACC is 8.2 percent, andthe tax rate is 21 percent.a. If the company's cost of equity is 11 percent, what is its pretax cost of debt? (Do notround intermediate calculations and enter your answer as a percent rounded to 2decimal places, e.g., 32.16.)b. If instead you know that the aftertax cost of debt is 6.1 percent, what is the cost ofequity? (Do not round intermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)a. Cost of debtLesI%b. Cost of equity%

The objective of the question is to calculate the pretax cost of debt and the cost of equity for…

Answered: Ursala, Incorporated, has a target…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Fama's Llamas has a weighted average cost of capital of 9.4 percent. The company's cost of equity is 13 percent, and its pretax cost of debt is 6.7 percent. The tax rate is 22 percent. What is the company's target debt-equity ratio? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.) L Debt-equity ratio
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Kendall Corporation has no debt but can borrow at 6.5 percent. The firm’s WACC is currently 10 percent, and there is no corporate tax. What is the company’s cost of equity? Note: Do not round intermediate calculations and enter your answer as a percent rounded to the nearest whole number, e.g., 32. If the firm converts to 10 percent debt, what will its cost of equity be? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. If the firm converts to 45 percent debt, what will its cost of equity be? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. What is the company’s WACC in parts (b) and (c)? Note: Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e.g., 32.
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A company finances its operations and growth opportunities, using common equity and debt. The debt-to-equity ratio of the CI Corp. is 0.3. If its cost of equity is 14%, and its pretax cost of debt is 5%, what comes closest to the company’s WACC? The tax rate is 21%. 6.7% 4.5% 7.1% 6.3% 5.8% The answer is not 7.1%

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