Bermuda Cruises issues only common stock and coupon bonds. The firm has a debt–equity ratio of...
Bermuda Cruises issues only common stock and coupon bonds. The firm has a debt–equity ratio of .75. The cost of equity is 11.6 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 40 percent?
Homework Answers
Capital structure weight of the firm's equity
Here, the Debt-Equity Ratio is 0.75, therefore, the total debt and equity will be 1.75 (0.75 + 1.00)
Therefore, the Capital structure weight of the firm's equity = [Equity / Total Debt & Equity] x 100
= [1.00 / 1.75] x 100
= 57.14%
“Hence, the Capital structure weight of the firm's equity will be 57.14%”
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