Yates Inc. is currently an all equity firm, but the company can borrow at 7.9 percent interest. The company currently has one million shares outstanding, and you estimate the company's WACC is currently 9.7 percent, and the tax rate is 35 percent. If the firm converts to 35 percent debt and receives tax exempt status, what will its new cost of equity be? (Leave your answer as a decimal rounded to 3 decimal places, e.g., 0.136.) Cost of equity (Click to select)

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
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Yates Inc. is currently an all equity firm, but the company can borrow at 7.9 percent
interest. The company currently has one million shares outstanding, and you estimate
the company's WACC is currently 9.7 percent, and the tax rate is 35 percent.
If the firm converts to 35 percent debt and receives tax exempt status, what will its
new cost of equity be? (Leave your answer as a decimal rounded to 3 decimal
places, e.g., 0.136.)
Cost of equity
(Click to select)
Transcribed Image Text:Yates Inc. is currently an all equity firm, but the company can borrow at 7.9 percent interest. The company currently has one million shares outstanding, and you estimate the company's WACC is currently 9.7 percent, and the tax rate is 35 percent. If the firm converts to 35 percent debt and receives tax exempt status, what will its new cost of equity be? (Leave your answer as a decimal rounded to 3 decimal places, e.g., 0.136.) Cost of equity (Click to select)
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