Asked by Jalen Taylor on May 04, 2024
Verified
JoBo's is a 100% equity financed firm with a tax rate of 34% and a WACC of 13%. The company can borrow money at a current rate of 8%. EBIT is $24,500 annually. What is the current cost of equity?
A) 8.58%
B) 10.72%
C) 12.67%
D) 13.00%
E) 13.33%
Equity Financed
Refers to raising capital for a company through the sale of shares in the company to investors.
Tax Rate
The portion of one's income or a company's earnings attributed to taxes.
Current Rate
The present value of a financial instrument or the latest interest rate on a loan or investment.
- Comprehend the methods and importance of calculating the cost of debt and equity for companies.
- Calculate the weighted average cost of capital (WACC) for companies possessing diverse financing frameworks.
Verified Answer
PT
Payton TranumMay 06, 2024
Final Answer :
D
Explanation :
Since JoBo's is 100% equity financed, its WACC is equal to its cost of equity. Therefore, the current cost of equity is 13%.
Learning Objectives
- Comprehend the methods and importance of calculating the cost of debt and equity for companies.
- Calculate the weighted average cost of capital (WACC) for companies possessing diverse financing frameworks.