Crosby Industries has a debt–equity ratio of 1.6. Its WACC is 12 percent, and its cost of debt is 9 percent. There is no corporate tax.
a. What is the company’s cost of equity capital?
b. What would the cost of equity be if the debt–equity ratio were 2?
c. What would the cost of equity be if the debt–equity ratio were 0.4?
d. What would the cost of equity be if the debt–equity ratio were zero?