Kunitz Co. has no debt. Its cost of capital is 10.1 percent. Suppose Kunitz conv
ID: 2646602 • Letter: K
Question
Kunitz Co. has no debt. Its cost of capital is 10.1 percent. Suppose Kunitz converts to a debt-equity ratio of 1. The interest rate on the debt is 7.2 percent. Ignore taxes for this problem.
Requirement 2:
What is its new WACC? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Kunitz Co. has no debt. Its cost of capital is 10.1 percent. Suppose Kunitz converts to a debt-equity ratio of 1. The interest rate on the debt is 7.2 percent. Ignore taxes for this problem.
Requirement 2:
What is its new WACC? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Explanation / Answer
Kunitz Co. has no debt. Its cost of capital is 10.1 percent. Suppose Kunitz converts to a debt-equity ratio of 1. The interest rate on the debt is 7.2 percent. Ignore taxes for this problem.
New WACC = Weight of equity * Cost of equity + Weight of debt * Cost of debt
New WACC = 1/(1+1) * 10.1 + 1/2*7.2
New WACC = 8.65%
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