posted by .

Jungle, Inc., has a target debt−equity ratio of 0.72. Its WACC is 11 percent, and the tax rate is 31 percent. (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16))

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?

I don't know to find formula

## Similar Questions

1. ### Financial Management

Reading Foods is interested in calculating its weighted average cost of capital (WACC). The company’s CFO has collected the following information: • The target capital structure consists of 40 percent debt and 60 percent common …
2. ### Math (Accounting)

Reading Foods is interested in calculating its weighted average cost of capital (WACC). The company’s CFO has collected the following information: • The target capital structure consists of 40 percent debt and 60 percent common …

Reading Foods is interested in calculating its weighted average cost of capital (WACC). The company’s CFO has collected the following information: • The target capital structure consists of 40 percent debt and 60 percent common …
4. ### Finance

Jungle, Inc. has a target debt-equity ratio of 0.72. Its WACC is 11.5 percent and the tax rate is 34 percent. What is the cost of equity if the aftertax cost of debt is 5.5 percent?
5. ### finance

The Nutrex Corporation wants to calculate its weighted average cost of capital. Its target capital structure weights are 40 percent long-term debt and 60 percent common equity. The before-tax cost of debt is estimated to be 10 percent …
6. ### Finance

a firm wants to create a weighted average cost of capital (WACC) of 10.4 percent. The firm's cost of equity is 14.5 percent and its pre-tax cost of debt is 8.5 percent. The tax rate is 34 percent. What does the debt weight need to …
7. ### finance

5.Capital Co. has a capital structure, based on current market values, that consists of 21 percent debt, 9 percent preferred stock, and 70 percent common stock. If the returns required by investors are 10 percent, 12 percent, and 17 …
8. ### Corporate Finance

5.Capital Co. has a capital structure, based on current market values, that consists of 21 percent debt, 9 percent preferred stock, and 70 percent common stock. If the returns required by investors are 10 percent, 12 percent, and 17 …
9. ### Finance

Jungle, Inc., has a target debt−equity ratio of 0.84. Its WACC is 11.5 percent, and the tax rate is 34 percent. Required: (a) If Jungle's cost of equity is 14.5 percent, its pretax cost of debt is percent. (b) If instead you …
10. ### Finance

The ACME Suction Cup company has \$4,500 of debt and \$10,500 of common stock equity. The total value of the company is \$15,000. The company's cost of equity is 11.5 percent, the cost of debt is 5.9 percent and the relevant tax rate …

More Similar Questions