skip to Main Content
The smarter way
to do assignments.

Please note that this is just a preview of a school assignment posted on our website by one of our clients. If you need assistance with this question too, please click on the Order button at the bottom of the page to get started.

Kose, Inc. has a target debt-equity ratio of 1.40. Its WACC is 8.3 percent, and the tax rate is 38%.If Kose’s cost of equity is 15%, what is the pre-tax cost of debt? (final answer should be rounded to 2 decimal places)If instead you know that the aftertax cost of debt is 3.9%, what is the cost of equity? (answer should be rounded to 2 decimal places)
Concept: Weighted average cost of capital can be calculated as: WACC = Weighted Cost of Equity + Weighted Cost of Debt (after tax) = Weight of Equity*Cost of Equity + Weight of debt *Cost of debt (after tax) Solution: For Kose, Inc.: Debt-Equity Ratio = 1.40 So, Total Debt = 1.40*Total Equity Total Assets = Total Debt + Total Equity = (1.40 + 1)*Total Equity Weight of Equity = Total Equity/Total Assets = 1/2.40 = 41.67% Weight of Debt = 100% = 41.67% = 58.33% WACC = 8.3% (a) Cost of Equity = 15% According to WACC Formula:…

3% = 15%*41.67% + Kd*58.33% So, After-tax Cost of Debt (kd) = 3.51% Pre-tax Cost of Debt = After-tax Cost of Debt/(1-Tax Rate) = 3.51%/(1-38%) = 5.67% Therefore, pre-tax cost of debt is 5.67%. (b) After-tax Cost of Debt = 3.9% According to WACC Formula: 8.3% = Ke*41.67% + 3.9%*58.33% So, Cost of Equity (Ke) = 14.46% Therefore, cost of equity is 14.46%.

GET HELP WITH THIS ASSIGNMENT TODAY

Clicking on this button will take you to our custom assignment page. Here you can fill out all the additional details for this particular paper (grading rubric, academic style, number of sources etc), after which your paper will get assigned to a course-specific writer. If you have any issues/concerns, please don’t hesitate to contact our live support team or email us right away.

How It Works        |        About Us       |       Contact Us

© 2018 | Intelli Essays Homework Service®