A firm has a debt-equity ratio of 1, a cost of equity of 16 percent, and a cost of debt of 8 percent. if there are no taxes or other imperfections, what is its unlevered cost of equity? 8%.
<h3>What do you mean debt/equity ratio?</h3>
- The debt-equity ratio serves as a gauge for how equally creditors and owners or shareholders contributed to the capital used by the company. The debt-equity ratio is the simple ratio of the company's long-term debt and equity capital.
- The debt-to-equity (D/E) ratio, which measures a company's financial leverage, is determined by dividing all of its obligations by its shareholders' value.
- Your "debt ratio" is determined by dividing your income by all of your debts. The banks are interested in this. A debt-to-income ratio of around 30% is ideal. 40% and above is crucial. You might not get a loan from a lender.
- The debt-to-equity (D/E) ratio displays the level of debt held by a corporation. Lenders and investors view a high D/E ratio as dangerous since it implies that the company is funding a sizable portion of its prospective growth through borrowing.
What is its unlevered cost of equity?
Levered cost of equity = 16%
Since Debit Equity ratio is 1, Weight of Equity as well as Weight of Debt will be .50 (i.e. Debt 50% and Equity 50%)
Unlevered Cost of Equity = 16% *(0.5÷ 0.5+0.5)
= 16% * (0.5 ÷ 1)
=8%
A firm has a debt-equity ratio of 1, a cost of equity of 16 percent, and a cost of debt of 8 percent. if there are no taxes or other imperfections, what is its unlevered cost of equity? 8%.
To learn more about debt-equity ratio, refer to:
brainly.com/question/26354272
#SPJ4