Question
In: Finance
Bermuda Cruises issues only common stock and coupon bonds. The firm has a debt-equity ratio of 1.23
Bermuda Cruises issues only common stock and coupon bonds. The firm has a debt-equity ratio of 1.23. The cost of equity is 12.6 percent and the pretax cost of debt is 7.2 percent. What is the capital structure weight of the firm's equity if the firm's tax rate is 35 percent?
Solutions
Expert Solution
Debt-equity ratio=debt/equity
Hence debt=1.23*equity
Total assets=Total liabilities+Total equity
=1.23*equity+equity
=2.23*equity
Hence weight of equity=equity/Total assets
=equity/(2.23*equity)
=0.4484(or 44.84% approx).
jeff jeffy answered 2 years agoRelated Solutions
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