The cost of capital is the same as the cost of equity for firms that are...
The cost of capital is the same as the cost of equity for firms that are financed
Select one:
a. entirely by debt.
b. by both debt and equity.
c. by 50 percent equity and 50 percent debt.
d. entirely by equity.
Homework Answers
Answer d. entirely by equity
Based on the formula for WACC
WACC = Weight of debt * Cost of debt + Weight of Equity * Cost of Equity
Now, WACC = Cost of Equity
This is possible only when weight of debt * cost of debt = 0, and weight of equity =1.
When weight of equity = 1, it implies there is no debt and hence, entier financing is through equity.
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