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Anvisha [2.4K]
2 years ago
9

The Outlet Mall has a cost of equity of 16.8%, a pretax cost of debt of 8.1%, and a return on assets of 14.5%. Ignore taxes. Wha

t is the debt-equity ratio?
Business
1 answer:
krok68 [10]2 years ago
8 0

Answer:

0.36

Explanation:

Cost of equity of 16.8%,

Pretax cost of debt of 8.1%

Return on assets of 14.5%

As per NN proposition: Cost of equity = Return on asset + D/E ratio (Return on asset-Cost of debt)

0.168 = 0.145 + D/E (0.145 - 0.082)

0.168 - 0.145 = D/E (0.064)

0.023 =  D/E (0.064)

D/E = 0.023/0.064

D/E = 0.359375

D/E = 0.36

Thus, the debt-equity ratio is 0.36

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A

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