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Alex Ar [27]
3 years ago
7

Bermuda Cruises issues only common stock and coupon bonds. The firm has a debt-equity ratio of .45. The cost of equity is 17.6 p

ercent and the pretax cost of debt is 8.9 percent. What is the capital structure weight of the firm's equity if the firm's tax rate is 35 percent?
Business
1 answer:
jeka943 years ago
6 0

Answer:

We = 68.97%

Explanation:

debt to equity ratio = 0.45\\\frac{Debt}{Equity} = 0.45\\ Debt = 0.45 Equity\\\\Total capital = Equity + Debt = Equity + 0.45 Equity\\                      Total Capital = Equity (1+0.45)= 1.45 Equity\\

Let weight of equity in the capital structure be represented by We.

We = \frac{Equity}{1.45Equity} = \frac{1}{1.45} = 0.6897

Therefore the capital structure weight of the firm's equity is 68.97%.

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