Whispering Pines Incorporated is all-equity-financed. The expected rate of return on the company's shares is 12.25%. a. What is the opportunity cost of capital for an average-risk Whispering Pines investment? Note: Enter your answer as a percent rounded to 2 decimal places. b. Suppose the company issues debt, repurchases shares, and moves to a 25% debt-to-value ratio ( = 0.25). What will be the company's weighted-average cost of capital at the new capital structure? The borrowing rate is 7.75% and the tax rate is 21%. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
Whispering Pines Incorporated is all-equity-financed. The expected rate of return on the company's shares is 12.25%. a. What is the opportunity cost of capital for an average-risk Whispering Pines investment? Note: Enter your answer as a percent rounded to 2 decimal places. b. Suppose the company issues debt, repurchases shares, and moves to a 25% debt-to-value ratio ( = 0.25). What will be the company's weighted-average cost of capital at the new capital structure? The borrowing rate is 7.75% and the tax rate is 21%. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
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
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Transcribed Image Text:Whispering Pines Incorporated is all-equity-financed. The expected rate of return on the company's shares is 12.25%.
a. What is the opportunity cost of capital for an average-risk Whispering Pines investment?
Note: Enter your answer as a percent rounded to 2 decimal places.
b. Suppose the company issues debt, repurchases shares, and moves to a 25% debt-to-value ratio ( = 0.25). What will be the
company's weighted-average cost of capital at the new capital structure? The borrowing rate is 7.75% and the tax rate is 21%.
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
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