ABC Company has a before-tax cost of debt of 5.94%. The cost of equity of an...

ABC Company has a before-tax cost of debt of 5.94%. The cost of equity of an unlevered firm (Note: cost of equity of unlevered firm = return on assets = cost of capital of the firm's assets = RA) is 17.14%. The D/E ratio is 1.13. What is the cost of equity? Assume a tax rate of 27.4%. Enter your answer as a percentage rounded off to two decimal points. Do not enter % in the answer box.

Expert Solution

Please upvote if the ans is helpful.In case of doubt,do comment.Thanks.

jeff jeffy answered 2 years ago

ABC has estimated the after-tax costs of debt and equity capital for various proportions of debt...

ABC has estimated the after-tax costs of debt and equity capital for various proportions of debt in its capital structure (debt + equity): % of Debt Cost of Debt. Cost of Equity 35. 5,4% 13,8% 40. 5,6. 14 45. 5,9. 14,3 50. 6,4. 14,7 If ABC pays a current dividend of $1.00 and expects dividends to grow at a constant rate of 7%, what is ABC’s stock price if it obtains its optimal capital structure?

To calculate the after-tax cost of debt, multiply the before-tax cost of debt by . Perpetualcold...

To calculate the after-tax cost of debt, multiply the before-tax cost of debt by . Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 11.10% for a period of four years. Its marginal federal-plus-state tax rate is 25%. PRC’s after-tax cost of debt is (rounded to two decimal places). At the present time, Perpetualcold Refrigeration Company (PRC) has 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price...

A. The (before-tax cost of debt/after-tax cost of debt) is the interest rate that a firm...

A. The (before-tax cost of debt/after-tax cost of debt) is the interest rate that a firm pays on any new debt financing. B. Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 11.10% for a period of four years. Its marginal federal-plus-state tax rate is 45%. PRC’s after-tax cost of debt is (6.11%/7.03%/5.80%/6.72%) (rounded to two decimal places). C. At the present time, Perpetualcold Refrigeration Company (PRC) has 10-year noncallable bonds with a face value of $1,000...

Q6. If a firm’s before-tax cost of debt is 10% and the firm has a 10%...

Q6. If a firm’s before-tax cost of debt is 10% and the firm has a 10% marginal tax rate, what is the firm’s after-tax cost of debt? 6.5% 3.5% 9.0% 7.9% Q7. A company has preferred stock that can be sold for $100 per share. The preferred stock pays an annual dividend $6. Therefore, the cost of preferred stock is: 4.0% 5.0% 6.0% 10.0% Q8. Suppose your company has an equity beta of 1.5 and the current risk-free rate is...

A company has a cost of debt of 13.56% and a WACC of 18.58%. The debt-equity...

A company has a cost of debt of 13.56% and a WACC of 18.58%. The debt-equity ratio is 0.07. The tax rate is 36%. What is the cost of equity?

1. Do we focus on after-tax cost of debt or before-tax cost of debt? Do we...

1. Do we focus on after-tax cost of debt or before-tax cost of debt? Do we focus on new costs of debt or historical costs of debt? Why? 2. How to adjust component cost of debt, preferred stock, common stock for flotation costs? 3. When we calculate WACC, do we consider such current liabilities as accounts payable, accruals, and deferred taxes as sources of funding? Why?

i) A company is financed 60% by debt and 40% by equity. The pre-tax cost of...

i) A company is financed 60% by debt and 40% by equity. The pre-tax cost of debt is currently 10%. The Finance Director has stated that the weighted average cost of capital for the company is 9.6%. What is the cost of equity? Assume the tax rate is 40%. a) 11.4% b) 9.8% c) 12% d) 15% ii) Ashley Ardern has been researching a vaccine for Covid-19. The cost of the research efforts has already amounted to $500,000. If Ashley...

Wayco Industrial Supply has a pre-tax cost of debt of 7.6 percent, a cost of equity...

Wayco Industrial Supply has a pre-tax cost of debt of 7.6 percent, a cost of equity of 14.3 percent, and a cost of preferred stock of 8.5 percent. The firm has 220,000 shares of common stock outstanding at a market price of $27 a share. There are 25,000 shares of preferred stock outstanding at a market price of $41 a share. The firm has 1000 bonds that have a face value of $1,000 each and a market price of $1,012....

Company ABC has a capital structure that consists solely of debt and common equity. The company...

Company ABC has a capital structure that consists solely of debt and common equity. The company has issued 15-year, 12% semiannual coupon bond sells for $1,153.72. Its stock currently pays a $2 dividend per share and the stock’s price is currently $24.75. The company’s ROE is 15% and paying out 60% of its earnings.its tax rate is 35%; and the company estimates that its WACC is 13.95%. What percentage of the company’s capital structure consists of debt financing?

Before-tax cost of debt and? after-tax cost of debt??Personal Finance Problem???David Abbot is interested in purchasing...

Before-tax cost of debt and? after-tax cost of debt??Personal Finance Problem???David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the? security: Sony Bond Par value ? $1000 Coupon interest rate Corporate tax rate 5.5?% 35?% Cost????????? Years to maturity 10?? ?$910 Answer the following? questions: a.??Calculate the ?before-tax cost of the Sony bond using the? bond's yield to maturity? (YTM). b.??Calculate the ?after-tax cost of the Sony bond given the corporate...

Question