Empress Corp. has no debt but can borrow at 8.2percent. The firms WACC

QUESTION

Empress Corp. has no debt but can borrow at 8.2percent. The firms WACC is currently 11 percent, and the tax rateis 35 percent. 2 decimal places find cost of equity.
A. As firm has No Debt, Wd=0 & We=1WACC = Wd*Kd*(1-T) We*Kewhere Kd is Cost of Debt & Ke is cot of equity So WACC = We*Ke as Wd=0So Ke = WACC = 11% b. When Wd=25%. Kd=8.2%, We=(100-Wd) = 75%, WACC = 11%. Whatis KeWACC = 11% = 25% * 8.2% *(1-35%) 75%*Keie 0.75*Ke = 0.11 0.013325 =

e Ke = 12.89% c. When Wd=50%. Kd=8.2%, We=(100-Wd) = 50%, WACC = 11%.What is KeWACC = 11% = 50% * 8.2% *(1-35%) 50%*Keie 0.50*Ke = 0.11 0.02665 = 0.0834ie Ke = 16.67% d. In both cases, WACC is 11%

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