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 0.70?

Question

Quizplus · Accepted Answer

WACC = [(1.0/1.8) × 0.145] + [(0.8/1.8) × 0.049] = 0.102333;WACC = 0.102333 = [(1.0/1.70) × R_E] + [(0.70/1.70) × 0.049; R_E = 13.97 percent

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