Wednesday

March 4, 2015

March 4, 2015

Posted by **Matt** on Sunday, October 31, 2010 at 5:21pm.

Required:

(a) If Jungle's cost of equity is 14 percent, its pretax cost of debt is percent.

(b) If instead you know the aftertax cost of debt is 6.7 percent, the cost of equity is percent.

Explanation:

(a): Using the equation to calculate WACC, we find:

WACC = 0.11 = (1/1.72)(0.14) + (0.72/1.72)(1 – 0.31)RD

RD = 0.099 or 9.9%

(b): Using the equation to calculate WACC, we find:

WACC = 0.11 = (1/1.72)RE + (0.72/1.72)(0.067)

RE = 0.141 or 14.1%

In this example problem, how would you find the formulas for RE and RD?

**Answer this Question**

**Related Questions**

Finance - Jungle, Inc., has a target debt−equity ratio of 0.84. Its WACC ...

Finance - Jungle, Inc. has a target debt-equity ratio of 0.72. Its WACC is 11.5 ...

Finance - a firm wants to create a weighted average cost of capital (WACC) of 10...

finance - 5.Capital Co. has a capital structure, based on current market values...

Corporate Finance - 5.Capital Co. has a capital structure, based on current ...

finance - The Nutrex Corporation wants to calculate its weighted average cost of...

Financial Management - Reading Foods is interested in calculating its weighted ...

Accounting PLEASE HELP!!!!!!!!! - Reading Foods is interested in calculating its...

Math (Accounting) - Reading Foods is interested in calculating its weighted ...

Corporate Finance - Finding the Capital Structure Fama's Llamas has a weighted ...