Assume that XYZ Corporation is a leveraged company with the following information: $$\begin{array} { l }
K _ { l } = \text { cost of equity capital for } X Y Z = 13 \% \
i = \text { before-tax borrowing cost } = 8 \% \
t = \text { marginal corporate income tax rate } = 30 \%
\end{array}$$ Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3%.

Question

Assume that XYZ Corporation is a leveraged company with the following information: $$\begin{array} { l } 
K _ { l } = \text { cost of equity capital for } X Y Z = 13 \% \
i = \text { before-tax borrowing cost } = 8 \% \
t = \text { marginal corporate income tax rate } = 30 \%
\end{array}$$ Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3%.

Quizplus · Accepted Answer

The Answer of Assume that XYZ Corporation is a leveraged company with the following information: $$\begin{array} { l } 
K _ { l } = \text { cost of equity capital for } X Y Z = 13 \% \
i = \text { before-tax borrowing cost } = 8 \% \
t = \text { marginal corporate income tax rate } = 30 \%
\end{array}$$ Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3%.

Assume That XYZ Corporation Is a Leveraged Company with the Following