show work Paget, Inc.. has a target debt-equity ratio of 1.80. Its WACC is 8.7 p

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Paget, Inc.. has a target debt-equity ratio of 1.80. Its WACC is 8.7 percent, and the tax rate ¡s 40 percent. If the company's cost of equity is 15 percent, what is its pretax cost of debt? (Do not round intermediate calculations and round your final answer to 2 decimal places, (e.g., 32.16)) cost of debt If instead you know that the aftertax cost of debt is 7.1 percent, what is the cost of equity? (Do not round intermediate calculations and round your final answer to 2 decimal places, (e.g., 32.16)) Cost of equity

Explanation / Answer

a. Let pretax cost of debt be D%

Then 15%*1/2.8 + D*(1-40%)*1.8/2.8 = 8.7%

Solving, we get D = pretax cost of debt = 8.67%

b. Let cost of equity be E%

Then E*1/2.8 + 7.1%*1.8/2.8 = 8.7%

Solving, we get E = cost of equity = 11.58%

Hope this helped ! Let me know in case of any queries.

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