Asked by
Jonice Storer
on Dec 09, 2024
Verified
A firm has a debt-equity ratio of.40, a WACC of 16%, and a yield-to-maturity on its debt of 13%. Ignoring taxes, what is the cost of equity?
A) 7.8%
B) 9.6%
C) 11.8%
D) 15.2%
E) 17.2%
Debt-Equity Ratio
The financial ratio reflects how shareholders' equity and debt equally contribute to asset financing.
Yield-To-Maturity
An estimate of the total return expected on a bond if the bond is held until the date it matures.
WACC
Weighted Average Cost of Capital; a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.
- Evaluate how leverage affects the cost of capital for a corporation.
- Execute the principle of financial leverage to assess its effect on financial gains and the expense of equity.
Verified Answer
EV
Learning Objectives
- Evaluate how leverage affects the cost of capital for a corporation.
- Execute the principle of financial leverage to assess its effect on financial gains and the expense of equity.