Sen Import and Export Inc. has a target capital structure of 40% debt and 60% equity. The Yield to maturity (YTM) of their bond issue is 9% and the corporate tax rate is 40%. The company’s CFO has calculated its WACC to be 9.75%. Given this information, what is the company’s cost of equity?
Also, suppose the CFO of the company wants to reduce its WACC. The simplest way to do this is by increasing the weight of debt in its capital structure. If his target WACC is 8.25%, what would the debt –equity mix of the company under this condition?