Blue bull,
Inc., has a target debt-equity ratio of .55. Its WACC is 8.8 percent, and
the tax rate is 35 percent.
(a) If the
company’s cost of equity is 11 percent, what is its pretax cost of debt?
(b) If the
aftertax cost of the debt is 3.8 percent, what is the cost of equity?
TUTORIAL PREVIEW
Debt-equity ratio =
Debt/ equity = 0.55
Debt = 0.55 equity
Debt + equity = 1
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