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    betch11's Avatar
    betch11 Posts: 1, Reputation: 1
    New Member
    		  
    #1

    Sep 15, 2006, 12:47 PM
    Debt Equity & Cost of Capital
    McCoy, Inc. has equity with a market value of $40 million and
    debt with a market value of $20 million.
    The cost of the debt is 6 percent semi-annually.
    Treasury bills that mature in one year yield 5 percent per annum,
    and the expected return on the market portfolio over the
    next year is 15 percent.
    The beta of McCoy’s equity is 0.8 .The firm pays no taxes.

    a. What is McCoy's debt-equity ratio?

    b. What is the firm’s weighted average cost of capital?

    c. What is the cost of capital for an otherwise identical all-equity firm?
    Curlyben's Avatar
    Curlyben Posts: 18,514, Reputation: 1860
    BossMan
    		  
    #2

    Sep 15, 2006, 01:18 PM
    Please refer to this Announcement
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