Balance Corp.has a weighted average cost of capital equal to 5.5%.If the firm is financed with 25% equity and 75% debt and if the after-tax of that debt is 4%,then what is the cost of equity for the firm?

Name: Balance Corp.has a weighted average cost of capital equal to 5.5%.If the firm is financed with 25% equity and 75% debt and if the after-tax of that debt is 4%,then what is the cost of equity for the firm?
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Quizplus · Accepted Answer

(.25)(cost of equity)+ (.75)(.04)= .055 =====> cost of equity = .1