Problemblue bull inc has a target debt-equity ratio of 55, Ask an Expert

Accounting

Problem:

Blue Bull, Inc., has a target debt-equity ratio of .55. Its WACC is 8.1 percent, and the tax rate is 35 percent.

Required:

Question 1: If the company's cost of equity is 11 percent, what is its pretax cost of debt?

Question 2: If the aftertax cost of debt is 3.8 percent, what is the cost of equity?

Note: Show all workings.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91165991

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