Purchase Solution

Cost of equity capital

Not what you're looking for?

Ask Custom Question

David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 9%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 9.96%. What is the company's cost of equity capital?

Purchase this Solution
Solution Summary

The solution explains how to calculate the cost of equity capital

Purchase this Solution
Free BrainMass Quizzes
Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

View More Free Quizzes
Related BrainMass Solutions

  • Acetate Inc. Debt/Equity, WACC, Cost of Capital

    Debt/Equity, WACC, Cost of Capital Acetate, Inc., has equity with a market value of $20 million and debt with a market value of $10 million. The cost of the debt is 14 percent per annum.

  • Financing and Valuation

    Weighted-average cost of capital =(Cost of equity*equity percent of capital) + (after-tax cost of debt*debt percent of equity) Because debt + equity = total capital, Weighted-average cost of capital =(Cost of equity*(1-debt percent of capital))

  • Solving: Weighted Average Cost of Capital

    Cost of equity Ke = Rf+b(Km-Rf)=13.00% Ke= Cost of Equity capital Rf= Risk free Rate= 0.05 Km= Expected market return= 0.15 b=beta coefficient 0.8 Cost of debt(Annualized)= (1+0.06/2)^2-1= 6.09% K0 = Cost of capital or overall required rate

  • American Recovery and Reinvestment Act of 2009

    The cost of capital for levered equity also represents as total of unlevered cost of capital and premium (Armitage, 2005).

  • Capital Structure, Cost of Capital

    What is the firm's weighted-average cost of capital at various combinations of debt and equity, given the following information? Debt/Assets After-Tax Cost of Debt Cost of Equity Cost of Capital 0% 8% 12% ? 10 8 12 ? 20 8 12 ?

  • WACC and Corporate Tax for a Firm

    What will its cost of capital be now? International Finance Calculations - Weighted Average Cost A firm has a corporate tax rate of 35%, a cost of debt of 8.25%, with a 15% cost on its equity capital.

  • What is the WACC for Lee Family Firms?

    Formula Weighted Average cost of capital (WACC) = (Weight of equity * cost of equity) + (weight of debt * cost of debt) Computation of weights We shall compute market weights of debt and equity Equity Capital = Price per share * number of shares

  • Optimal cost of capital

    Therefore, cost of debt is cheaper than the cost of equity. The appropriate debt equity mix for the firm is when the cost of capital is minimum.

  • Substituting debt for equity

    Thus the cost of debt and equity increases and the cost of capital rises as more debt is used. The solution explains the impact on the cost of capital of a firm as it substitutes debt for equity

  • Cost of equity

    provides steps to compute cost of equity capital.

View More Related Solutions