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19 Apr 2018

Shadow Corp. has no debt but can borrow at 7.6 percent. The firm’s WACC is currently 9.4 percent, and the tax rate is 35 percent.

a. What is Shadow’s cost of equity? (Do not round intermediate calculations.)

b. If the firm converts to 25 percent debt, what will its cost of equity be? (Do not round intermediate calculations and round your final answer to 2 decimal places.

c. If the firm converts to 50 percent debt, what will its cost of equity be? (Do not round intermediate calculations and round your final answer to 2 decimal places.

d-1 If the firm converts to 25 percent debt, what will the company's WACC be? (Do not round intermediate calculations and round your final answer to 2 decimal places.

d-2 If the firm converts to 50 percent debt, what will the company's WACC be? (Do not round intermediate calculations and round your final answer to 2 decimal places.

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Sixta Kovacek
Sixta KovacekLv2
20 Apr 2018

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Shadow Corp. has no debt but can borrow at 8 percent. The firm’s WACC is currently 9.8 percent, and the tax rate is 35 percent.

a. What is the company’s cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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b. If the company converts to 15 percent debt, what will its cost of equity be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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c. If the company converts to 50 percent debt, what will its cost of equity be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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d-1. If the company converts to 15 percent debt, what will the company's WACC be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

WACC %

d-2. If the company converts to 50 percent debt, what will the company's WACC be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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4.

Malkin Corp. has no debt but can borrow at 7.5 percent. The firm’s WACC is currently 14 percent, and there is no corporate tax.

a. What is the company’s cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to the nearest whole number, e.g., 32.)

Cost of equity %

b. If the firm converts to 20 percent debt, what will its cost of equity be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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c. If the firm converts to 50 percent debt, what will its cost of equity be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Cost of equity %

d. What is the company’s WACC in parts (b) and (c)? (Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e.g., 32.)

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20 percent %
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Malkin Corp. has no debt but can borrow at 6.5 percent. The firm❝s WACC is currently 10 percent, and there is no corporate tax. Required: (a) What is Malkin❝s cost of equity? Cost of equity % (b) If the firm converts to 10 percent debt, what will its cost of equity be? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Cost of equity % (c) If the firm converts to 45 percent debt, what will its cost of equity be? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Cost of equity % (d) What is Malkin❝s WACC in part (b) and (c)? (Do not round intermediate calculations. Enter your answers as a percentage rounded to the nearest whole number (e.g., 32).) WACC 10 percent % 45 percent %

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