Targeted weighted average cost of capital, Accounting Basics

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Targeted weighted average cost of capital

Problem:

Dominosa, Inc. wants to have a weighted average cost of capital of 7.1 percent. The firm has an aftertax cost of debt of 5 percent and a cost of equity of 10.9 percent.

Required:

Question: What debt-equity ratio is needed for the firm to achieve their targeted weighted average cost of capital?

Note: Show supporting computations in good form.

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Accounting Basics: Targeted weighted average cost of capital

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Accounting Basics: Targeted weighted average cost of capital

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