A firm has a debt-equity ratio of.40, a WACC of 16%, and a yield-to-maturity on its debt of 13%. Ignoring taxes, what is the cost of equity?
A) 7.8%
B) 9.6%
C) 11.8%
D) 15.2%
E) 17.2%

Name: A firm has a debt-equity ratio of.40, a WACC of 16%, and a yield-to-maturity on its debt of 13%. Ignoring taxes, what is the cost of equity? A) 7.8% B) 9.6% C) 11.8% D) 15.2% E) 17.2%
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Question

Quizplus · Accepted Answer

The WACC formula without taxes is: WACC = (E/V) * Re + (D/V) * Rd. Given WACC = 16%, Rd = 13%, and D/E = 0.40, we find Re = 17.2%.

A Firm Has a Debt-Equity Ratio Of