contestada

Phil's Carvings wants to have a weighted average cost of capital of 9.5 percent. The firm has an aftertax cost of debt of 6.5 percent and a cost of equity of 12.75 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?

Respuesta :

TomShelby

Answer:

Equity 48%

Debt 52%

Explanation:

[tex]WACC = K_e(\frac{E}{E+D}) + K_d(1-t)(\frac{D}{E+D})[/tex]

Ke 12.75%

Kd(1-t) =  (debt after-tax) 6.5%

desired WACC = 9.5%

which capital srtucture provides this WACC ?

we know that:

weight of equity + weight of debt = 1

weight of debt = 1 - weight of equity

we can solve for weight of equity

[tex].095 = 0.1275(w_e) + 0.065(1- w_e)[/tex]

[tex].095 = 0.1275(w_e) + 0.065\times 1- 0.065\times (w_e)[/tex]

[tex].095 -0.065 = 0.1275(w_e) - 0.065\times (w_e)[/tex]

[tex].0.03 = 0.0625(w_e)[/tex]

[tex](w_e) = 0.03/0.0625 = 0.48[/tex]

weight of equity = 0.48 = 48%

weight of debt= 1- weight of equity  = 1 - 0.48 = 0.52 = 52%

Otras preguntas