CNCT ACC CORPORATE FINANCE
CNCT ACC CORPORATE FINANCE
12th Edition
ISBN: 9781264604081
Author: Ross
Publisher: MCGRAW-HILL HIGHER EDUCATION
Question
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Chapter 13, Problem 10QAP

a

Summary Introduction

Adequate information:

Debt-equity ratio D/E = 0.38

Debt D = 0.38

Equity E = 1

WACC = 10.1%

Cost of equity Ke = 12%

Tax rate t = 25%

To compute: Pretax cost of debt for company K.

Introduction: The cost of debt refers to the interest payable on borrowing such as on bonds.

b

Summary Introduction

Adequate information:

After-tax cost of debt Kd = 6.4%

To compute: Cost of equity for the company K.

Introduction: The Cost of equity refers to the compensation offered to the investor for their risk of ownership.

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