Explore BrainMass

Explore BrainMass

    WACC: Weighted Average Cost of Capital

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Jungle, Inc., has a target debt;equity ratio of 0.81. Its WACC is 10.5 percent, and the tax rate is 34 percent. (Do not include the percent sign (%). Round your answers to 2 decimal places, e.g. 32.16.)


    (a) If Jungle's cost of equity is 16.5 percent, its pretax cost of debt is _____ percent.

    (b) If instead you know the aftertax cost of debt is 5.7 percent, the cost of equity is _____ percent.

    © BrainMass Inc. brainmass.com March 4, 2021, 8:34 pm ad1c9bdddf

    Solution Preview

    Please refer to the attachment for better formatting.

    WACC 0.105 (10.5 percent)
    Debt equity ratio 0.81
    If equity = 1
    Debt 0.81
    Total capital 1.81

    Debt 0.4475 ...

    Solution Summary

    This solution provides a step by step response which illustrates how to calculate the pretax cost of debt and cost of equity. An Excel attachment file is provided which presents the solution in proper formatting and contains the actual calculations.