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Calculate McCoy's debt-equity ratio and WACC (weighted average cost of capital)

McCoy, Inc., has equity with a market value of $40 million and debt with a market value of $20 million.
The cost of the debt is 6 percent semi-annually.
Treasury bills that mature in one year yield 5 percent per annum,
The expected return on the market portfolio over the next year is 15 percent.
The beta of McCoy's equity is 0.8.
The firm pays no taxes.

a. What is McCoy's debt-equity ratio?

b. What is the firm's weighted average cost of capital?

Solution Preview

a. What is McCoy's debt-equity ratio?

equity = 40 and debt = 20
Then debt-equity = 20/40 = 0.5

b. What is the firm's ...

Solution Summary

The solution shows all the calculations to arrive at the answers to the questions about debt to equity ratio and WACC for McCoy.

$2.19