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skelet666 [1.2K]
3 years ago
15

Brown Industries has a debt-equity ratio of 1.5. Its WACC is 9.6 percent, and its cost of

Business
1 answer:
Nesterboy [21]3 years ago
8 0

Answer:

A .Unlevered cost of equity = 9.6

b-1 Levered cost of equity = 28.69

b-2 Levered cost of equity = 14.37

b-3 Levered cost of equity = 9.6

Explanation:

A. First step is to calculate the E/A

D/A = D/(E+D)

D/A = 1.5/(1+1.5)

D/A=0.6

E/A = 1-D/A

E/A=1-0.6

E/A=0.4

Second Step is to calculate WACC using this formula

WACC = Levered cost of equity*E/A+Cost of debt*(1-tax rate)*D/A

Let plug in the formula

0.096= Levered cost of equity*=0.4+0.057*(1-0)*=0.6

Levered cost of equity =15.45%

Third step is to calculate UnLevered cost of equity using this formula

Levered cost of equity = Unlevered cost of equity+D/E*( Unlevered cost of equity-cost of debt)*(1-tax rate)

Let plug in the formula

0.1545 = Unlevered cost of equity+1.5*(Unlevered cost of equity-0.057)*(1-0)

Unlevered cost of equity = 9.6

b-1. Calculation for What would the cost of equity be if the debt-equity ratio were 2.0

Using this formula

Levered cost of equity = Unlevered cost of equity+D/E*( Unlevered cost of equity-cost of debt)*(1-tax rate)

Let plug in the formula

Levered cost of equity = 9.6+2*(9.6-0.057)*(1-0)

Levered cost of equity = 28.69

b-2. Calculation for What would the cost of equity be if the debt-equity ratio were 0.5

Using this formula

Levered cost of equity = Unlevered cost of equity+D/E*( Unlevered cost of equity-cost of debt)*(1-tax rate)

Let plug in the formula

Levered cost of equity = 9.6+0.5*(9.6-0.057)*(1-0)

Levered cost of equity = 14.37

b-3. Calculation for What would the cost of equity be if the debt-equity ratio were zero

Using this formula

Levered cost of equity = Unlevered cost of equity+D/E*( Unlevered cost of equity-cost of debt)*(1-tax rate)

Let plug in the formula

Levered cost of equity = 9.6+0*(9.6-0.057)*(1-0)

Levered cost of equity = 9.6

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Bond valuationlong dashSemiannual interest Find the value of a bond maturing in 4 ​years, with a ​$1 comma 000 par value and a c
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824.28

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2 years ago
The liabilities of Berber Company are $120,000 and the owner's equity is $230,000. What is the amount of Berber Company's total
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A. 1.89 years

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Explanation:

According to the scenario, computation of the given data are as follows,

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Salvage value = $10,000

Depreciation Value = ($250,000 - $10,000) ÷ 4 = $60,000

Annual net cashflow = After tax income + Depreciation

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