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: Be sure to show how you arrived at your answer.