Kunitz Co. has no debt. Its cost of capital is 9.3 percent. Suppose Kunitz conve
ID: 2634829 • Letter: K
Question
Kunitz Co. has no debt. Its cost of capital is 9.3 percent. Suppose Kunitz converts to a debt-equity ratio of 1.0. The interest rate on the debt is 6.4 percent. Ignore taxes for this problem. Requirement 1: What is the company?s new cost of equity? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).) Costof equity ______________ % Requirement 2: What is its new WACC? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).) WACC ________________ %Explanation / Answer
cost of equity = 9.3%
WACC = 0.5 * 9.3% + 0.5 * 6.4%
= 7.85%
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