Author Question: Brick Aviation Inc. has no debt but can borrow at 8% if it needs to. The shareholders require a ... (Read 46 times)

burton19126 · **on:** Apr 25, 2021

Question 1

Brick Aviation Inc. has no debt but can borrow at 6% if it needs to. The company's WACC is 12%. The tax rate is 35%. What is the required return of the company's shareholders?
◦ 7.8%
◦ 9.0%
◦ 12.0%
◦ Not enough information

Question 2

Brick Aviation Inc. has no debt but can borrow at 8% if it needs to. The shareholders require a return of 15%. The tax rate is 35%. If the company borrows such that its debt-to-value (D/V) ratio is 25%, then what will its cost of equity be? (Assume that Brick maintains the dollar amount of its debt at that level forever.)
◦ 15.9%
◦ 16.1%
◦ 16.3%
◦ 16.5%

jamesnevil303 · **Reply #1 on:** Apr 25, 2021

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