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Question 1 What is the average cost of capital for a firm with a debt-to-equity…

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Wize University Introduction to Finance Textbook > Cost of Capital

Weighted-Average Cost of Capital

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Question 1

What is the average cost of capital for a firm with a debt-to-equity ratio of 80%. The before-tax cost of debt is 6%, the beta of its common shares is 1.5, the market risk premium is 8% and t-bills are yielding 4%. The company's tax rate is 30%.
The average cost of capital is
%
More Weighted-Average Cost of Capital Questions:
Question 2
A firm has a weighted average cost of capital of 15.6%. The company's cost of debt is 10% before tax and has a debt to equity ratio of 120%. The company's tax rate is 40%. What is the cost of equity?
WIZE Corp operates in a country with no taxes and no risk of financial distress. Currently the firm has a D/E ratio of 3.5, a cost of debt of 8% and a cost of equity of 15%. Cyrus, a senior analyst, states that if the firm increases their use of debt their WACC should decrease. Cyrus is: