Determine company cost of equity capital, Finance Basics

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Determine company cost of equity capital

Problem:

Company ABC has a debt-equity ratio of .40. The firm's weighted average cost of capital is 15%, and the pretax cost of the firm's debt is 6%. The tax rate is 35%.

Required:

Question 1: What is the company's cost of equity capital?

Question 2: What is the company's unlevered cost of equity capital?

Question 3: What would the company's cost of equity capital be if the firm's debt-to-equity ratio were 1.5?

Note: Please show how to work it out.

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Finance Basics: Determine company cost of equity capital

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Finance Basics: Determine company cost of equity capital

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