Question

Jelco has a target debt-to-value ratio of .55. The pretax cost of debt is 8.6 percent, the assumed tax rate is 24 percent, and the unlevered cost of equity 13.4 percent. What is the target cost of equity

Answer 1

Answer:

17.21%

Explanation:

Calculation for What is the target cost of equity

Target cost of equity= 13.4% + (13.4% - 8.6%) (.55 / .45) (1 - 35%)

Target cost of equity= 13.4% + (4.8%) (.55 / .45) (1 - 35%)

Target cost of equity=17.21%

Therefore the target cost of equity is 17.21%