Williamson, Inc., has a debt-equity ratio of 2.45. The company's weighted average cost of capital is 10 percent, and its pretax cost of debt is 6 percent. The corporate tax rate is 25 percent. . What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What would the weighted average cost of capital be if the company's debt-equity ration were 80 and 1.70? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

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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Williamson, Inc., has a debt-equity ratio of 2.45. The company's weighted average cost
of capital is 10 percent, and its pretax cost of debt is 6 percent. The corporate tax rate is
25 percent.
a. What is the company's cost of equity capital? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
b. What is the company's unlevered cost of equity capital? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
c. What would the weighted average cost of capital be if the company's debt-equity ratio
were 80 and 1.70? (Do not round intermediate calculations and enter your answers
as a percent rounded to 2 decimal places, e.g., 32.16.)
a. Cost of equity
b. Unlevered cost of equity
C.
WACC at debt-equity ratio of 80
WACC at debt-equity ratio of 1.70
%
%
%
%
Transcribed Image Text:Williamson, Inc., has a debt-equity ratio of 2.45. The company's weighted average cost of capital is 10 percent, and its pretax cost of debt is 6 percent. The corporate tax rate is 25 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What would the weighted average cost of capital be if the company's debt-equity ratio were 80 and 1.70? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of equity b. Unlevered cost of equity C. WACC at debt-equity ratio of 80 WACC at debt-equity ratio of 1.70 % % % %
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