Young's Home Supply has a debt-equity ratio of 0.80. The cost of equity is 14.5 percent and the aftertax cost of debt is 4.9 percent. What will the firm's cost of equity be if the debt-equity ratio is revised to 0.75?

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WACC = [(1.0/1.8) F1F1F1S1F1F1F10 0.145] + [(0.8/1.8) F1F1F1S1F1F1F10 0.049] = 0.102333;WACC = 0.102333 = [(1.0/1.75) F1F1F1S1F1F1F10 R_E] + [(0.75/1.75) F1F1F1S1F1F1F10 0.049; R_E = 14.23 percent

Young's Home Supply Has a Debt-Equity Ratio of 0