rajaay3577 rajaay3577

Today at 11:43 AM
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Answered

Bermuda Cruises issues only common stock and coupon bonds. The firm has a debt–equity ratio of .77. The cost of equity is 11.7 percent and the pretax cost of debt is 6.7 percent. What is the capital structure weight of the firm's equity if the firm's tax rate is 35 percent?

Answer :

abiolataiwo2015 abiolataiwo2015

Today at 11:47 AM

Answer:

56.50%

Explanation:

Calculation for the capital structure weight of the firm's equity

Using this formula

Capital structure weight of the firm's equity =

1/(1+Debt equity ratio)

Let plug in the formula

Capital structure weight of the firm's equity =

1/(1+0.77)

Capital structure weight of the firm's equity = 1/1.77

Capital structure weight of the firm's equity = 0.5650*100

Capital structure weight of the firm's equity = 56.50%

Therefore Capital structure weight of the firm's equity will be 56.50%

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