Question

Triangle Enterprises has no debt but can borrow at 8 percent. The firm's WACC is currently 13.2 percent, and there is no corporate tax. If the firm converts to 30 percent debt, what will its cost of equity be?

Answer 1

Answer:

15.43%

Explanation:

Data provided in the question

WACC = 13.2%

Debt = 8%

Convert percentage = 30

So

We assume the WACC be cost of equity

The computation of the cost of equity is shown below:

Cost of equity = 13.2% + (13.2% - 8%) × 30% ÷ (1 - 30%)

                        = 13.2% + 5.2% × 0.428571

                        = 15.43%