Torp Industries Has A Debtequity Ratio Of 1 5 Its Wacc Is 12% And Its Cost Of Debt Is 12% The Corporate Tax


Torp Industries has a debt-equity ratio of 1.5. Its WACC is 12%, and its cost of debt is 12%. The corporate tax

rate is 35%

a. What is Torp’s cost of equity capital?

b. What would the cost of equity be if the debt-equity ratio were 2? What if it were 1?