Question
In: Finance
GXY Corp. has a WACC of 15%, a cost of debt capital of 5%, and a...
GXY Corp. has a WACC of 15%, a cost of debt capital of 5%, and a market value debt-to-equity ratio of 0.10. GXY Corp. is not subject to taxation. Suppose that GXY Corp. increased it market value debt-to-equity ratio to 0.35, What will be the change in GXY Corp’s WACC? Enter your answer as a percent; do not include the % sign. Round your final answer to two decimals.
Solutions
Expert Solution
COST OF EQUITY INCREASES WITH INCREASE IN DEBT BUT WACC
REMAINS CONSTANT
jeff jeffy answered 5 months agoRelated Solutions
GXY Corp. has a WACC of 15%, a cost of debt capital of 5%, and a...
GXY Corp. has a WACC of 15%, a cost of debt capital of 5%, and a
market value debt-to-equity ratio of 0.10. GXY Corp. is not subject
to taxation. Suppose that GXY Corp. increased it market value
debt-to-equity ratio to 0.35, What will be the change in GXY Corp’s
WACC? Enter your answer as a percent; do not include the % sign.
Round your final answer to two decimals.
Current Capital Structure and WACC Weight Cost Weighted Cost Debt 10% 6.50% 0.65% Preferred 15% 14%...
Current Capital Structure and WACC
Weight
Cost
Weighted Cost
Debt
10%
6.50%
0.65%
Preferred
15%
14%
2.10%
Equity
75%
18%
13.50%
Total
100%
16.25% WACC
Target Capital Structure and WACC
Weight
Cost
Weighted Cost
Debt
40%
6.5%
2.6%
Preferred
10%
14%
1.40%
Equity
50%
18%
9%
Total
100%
13% WACC
What are some differences between these two structures? What
issues could the target capital structure create?
Solve for the weighted average cost of capital (WACC) for Lightning Complex Corp (LC). LC has...
Solve for the weighted average cost of capital (WACC)
for Lightning Complex Corp (LC). LC has a beta of 2 and a
debt-to-equity ratio 3. The risk-free rate is 3% and the market
risk premium 8%. LC pays a 8% interest rate on its
debt.
A.
Not enough information
B.
10.75%
C.
16.25%
D.
11.55%
E.
8.35%
Western American Copper Company (WACC) has an unlevered cost of capital of 12%; a target debt...
Western American Copper Company (WACC) has an unlevered cost of
capital of 12%; a target debt to value ratio of 0.25; a debt cost
of capital of 8% and a corporate tax rate of 25%. Please estimate
WACC's rwacc
a.
10.00%
b.
11.50%
c.
12.50%
d.
11.00%
A company has a cost of debt of 13.56% and a WACC of 18.58%. The debt-equity...
A
company has a cost of debt of 13.56% and a WACC of 18.58%. The
debt-equity ratio is 0.07. The tax rate is 36%. What is the cost of
equity?
Roston Corporation has a debt-equity ratio of 3. The company’s weighted average cost of capital (WACC)...
Roston Corporation has a debt-equity ratio of 3. The company’s
weighted average cost of capital (WACC) is 11%. Its before-tax cost
of debt is 13% and tax rate is 25%. The company uses Capital Asset
Pricing Model (CAPM) to calculate its cost of equity. The risk-free
rate of return is 5% and the market risk premium is 7%. Find out
the beta of the company.
Safeassign Corp. has a debt to equity ratio of .85. Its Weighted average cost of capital...
Safeassign Corp. has a debt to equity ratio of .85. Its
Weighted average cost of capital is 9.9% and the tax rate is 35%.
If Safeassign’s after-tax cost of debt is 6.8%, what is the cost of
equity?
ii. Safeassign Corp. has a debt to equity ratio of .85. Its
Weighted average cost of capital is 9.9% and the tax rate is 35%.
If Safeassign’s cost of equity is 14% what is the pre-tax cost of
debt?
iii. Safegaurd Inc....
How to find CVS Health WACC, Cost of Debt, Cost of Equity using CAPM model (Capital...
How to find CVS Health WACC, Cost of Debt, Cost of Equity using
CAPM model (Capital Asset Pricing Model) for year 2017?
Braxton Corp. has no debt but can borrow at 6.4 percent. The firm’s WACC is currently...
Braxton Corp. has no debt but can borrow at 6.4 percent. The
firm’s WACC is currently 8.2 percent, and the tax rate is 35
percent. a. What is the company’s cost of equity? (Do not round
intermediate calculations. Enter your answer as a percent rounded
to 2 decimal places, e.g., 32.16.) Cost of equity % b. If the firm
converts to 35 percent debt, what will its cost of equity be? (Do
not round intermediate calculations. Enter your answer as...
Shadow Corp. has no debt but can borrow at 7.1 percent. The firm’s WACC is currently...
Shadow Corp. has no debt but can borrow at 7.1 percent. The
firm’s WACC is currently 8.9 percent, and the tax rate is 35
percent.
a. What is the company’s cost of equity? (Do not round
intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.) Calculate the Cost of
equity %
b. If the company converts to 25 percent debt, what will its
cost of equity be? (Do not round intermediate calculations and...
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