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Ignoring taxes, Pewter & Glass has a weighted average cost of capital of 10.82 percent. The company can borrow at 7.4 percent. What is the cost of equity if the debt-equity ratio is .68?

Respuesta :

letmeanswer

Answer:

Cost of Equity = 13.15%

Explanation:

Debt-Equity Ratio  Debt / Equity

Debt =0.68 * Equity

Let Equity =x

Debt = 0.68x

Total  = $1.68x

WACC = Respective Costs * Respective Weights

10.82 = (x/1.68x*Cost of equity)+(0.68x/1.68x*7.4)

10.82 = (Cost of equity/1.68)+2.995238095

Cost of Equity = (10.82-2.995238095)*1.68

Cost of Equity = 13.15%