Assume that XYZ Corporation is a leveraged company with the following information:
K_l = cost of equity capital for XYZ = 13%
i = before-tax borrowing cost = 8%
t = marginal corporate income tax rate = 30%
-Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3%.(Do not round intermediate calculations)

Question

Quizplus · Accepted Answer

Let D = debt-to-total-market-value ratio0.093 = (1 - D) × 0.13 + D × (1 - 0.30) × 0.080.093 = 0.13 - 0.13D + D × 0.70 × 0.080.13D - 0.056 D = 0.13 - 0.0930.074D = 0.037D = 0.50 = 50%

Assume That XYZ Corporation Is a Leveraged Company with the Following