Suman corporation manufactures specialty chemicals. Its debt-equity ratio is 8 per cent.
WACC is 15 per cent and its tax rate is 30 percent.
(a) If suman’s cost of equity is 20 percent, what is the pre-tax cost of debt?
(b) If suman can issue debt at an increased rate of 13 percent, what is the cost of equity?
Answers
Answer:
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Answer:
The correct answer is
1-40%
2- 70%
Explanation:
The debt-to-equity (D/E) ratio is used to evaluate a employer's monetary leverage and is calculated with the aid of dividing a corporation's total liabilities by way of its shareholder equity. The D/E ratio is an crucial metric used in company finance.it is a degree of the diploma to which a business enterprise is financing its operations thru debt as opposed to utterly owned price range. more especially, it reflects the capability of shareholder fairness to cowl all splendid money owed inside the event of a business downturn. The debt-to-equity ratio is a selected type of gearing ratio.
he debt-to-fairness (D/E) ratio compares a organization’s total liabilities to its shareholder equity and may be used to evaluate how a good deal leverage a organisation is the usage of.
higher-leverage ratios generally tend to indicate a organization or inventory with better threat to shareholders.
however, the D/E ratio is tough to examine throughout industry companies wherein ideal amounts of debt will range.
traders will often regulate the D/E ratio to consciousness on long-term debt only because the risks associated with long-time period liabilities are exceptional than short-term debt and payables.
these balance sheet categories may contain man or woman money owed that would now not normally be taken into consideration “debt” or “equity” within the traditional experience of a mortgage or the e book fee of an asset. due to the fact the ratio can be distorted by using retained profits/losses, intangible belongings, and pension plan modifications, in addition studies is usually had to understand a business enterprise’s true leverage.
due to the paradox of some of the bills within the number one balance sheet classes, analysts and buyers will frequently adjust the D/E ratio to be more useful and less complicated to evaluate among unique stocks. evaluation of the D/E ratio can also be stepped forward by way of such as brief-term leverage ratios, income performance, and growth expectations.
Suman corporation manufactures specialty chemicals. Its debt-equity ratio is 8 per cent.
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