Purchase Solution

Cost of Debt, Cost of Equity

Not what you're looking for?

Ask Custom Question

How do you calculate the cost of debt and cost of equity if you are only given the beta, debt/equity proportion, and the after tax interest rate?

Please see attached for more details.

Use a spreadsheet to calculate the cost of debt, cost of equity (using CAPM), and weighted marginal cost of capital for each level of debt shown above. Use Excel to construct a graph of these three lines, then copy and past it into your written analysis.

Use the data and the graph to decide whether the company's capital structure at the end of 2011 is appropriate (as recommended by the Trade-off Theory). If not, which changes would you recommend? (For this task, ignore the new financing needed for 2012; we want to finance the company in the most appropriate manner immediately)

Attachments
Purchase this Solution
Solution Summary

This solution helps in estimating Cost of Debt, Cost of Equity.

Solution Preview

Cost of Debt, Cost of Equity
How do you calculate the cost of debt and cost of equity if you are only given the beta, debt/equity proportion, and the after tax interest rate? Please see attached for more details.

Please find the solution attached.

...

Purchase this Solution
Free BrainMass Quizzes
Introduction to Finance

This quiz test introductory finance topics.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Production and cost theory

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

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

View More Free Quizzes
Related BrainMass Solutions

  • WACC: Weighted Average Cost of Capital

    after tax cost of debt =0.057 (5.7/100) WACC = cost of equity* equity ratio + after tax cost of debt *debt ratio 0.105= cost of equity*0.5525+ 5.7 *0.4475 Cost of equity = (0.105-0.057*0.4475)/0.5525 Cost of equity = 0.1439

  • Substituting debt for equity

    A firm's current balance sheet is as follows: Assets $100 Debt $10 Equity $90 Debt/Assets After-Tax Cost of Debt Cost of Equity Cost of Capital 0% 8% 12% ?

  • Pre-Tax Cost of Debt and Cost of Equity

    374245 Kose Inc: Pre-tax cost of debt; cost of equity Kose Inc has a target debt equity ratio of .65. Its WACC is 11.2 percent, and the tax rate is 35 %. If Kose's cost of equity is 15%, what is its pretax cost of debt?

  • Cost of equity/WACC

    319005 Calculations of Cost of Equity and WACC A firm has a debt-to-equity ration of 1. Its (levered) cost of equity is 16% and its cost of debt is 8%.

  • Cost of equity

    Proportion of equity * Cost of equity =Cost of Capital - Proportion of debt * Cost of debt Cost of debt= Before tax cost of debt *(1-tax rate) =9%*(1-.4) =5.4% Hence , .5*Cost of equity= 15%- .5*5.4% Cost of Equity= 24.6%=Answer The response

  • WACC and Corporate Tax for a Firm

    Weighted Average Cost= Weight of Debt * Cost of debt + Weight of Equity * Cost of equity =(15/40) *8.25%*(1-.35) + (25/40)*15% =0.1138 or 11.38% Cost of debt has been considered as post tax cost of debt.

  • Calculate WACC; Construct a Pro Forma Balance Sheet

    of debt + Proportion of equity X cost of equity WACC = Debt/Assets X after tax cost of debt + (1-Debt/Assets) X cost of equity For the first row the WACC is WACC = 0% X 8% + (1-0%) X 12% = 12% b.

  • Discounting unlevered cash flows, cost of debt, WACC

    b. adding the weighted average before tax cost of debt to the weighted average cost of equity. c. adding the weighted average after tax cost of debt to the weighted average cost of equity.

  • 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))

  • Cost of Debt, cost of equity, WACC

    200775 Cost of Debt, cost of equity, weighted average cost of capital If Wild Widgets, Inc., (WWI) were an all-equity firm, it would have a beta of 0.9.WWI has a target debt-to-equity ratio of 0.50.The expected return on the market portfolio is 16 percent

View More Related Solutions