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

Purchase this Solution
Solution Summary

This explains the steps to compute the Cost of equity capital

Purchase this Solution
Free BrainMass Quizzes
Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Production and cost theory

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

Motivation

This tests some key elements of major motivation theories.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

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