1. The cost of capital for a firm with a 60/40 debt/equity split, 2.93% cost of...

1. The cost of capital for a firm with a 60/40 debt/equity split, 2.93% cost of debt, 15% cost of equity, and a 35% tax rate would be

2. Complete the following sentence. The WACC _________________.

Group of answer choices

a. Is equal to the firm’s embedded debt cost times (1- the tax rate).

b. Is directly observable in financial markets.

c. Is the required return on any investments a firm makes that have a level of risk greater than that of present operations.

d. For a firm represents the risk and target capital structure of the firm’s existing assets as a whole.

Expert Solution

WACC = After tax cost of debt*Weight of debt + Cost of Equity*Weight of Equity

= 2.93%*(1-35%)*60% + 15%*40%

= 7.1427%

i.e. 7.14%

d. For a firm represents the risk and target capital structure of the firm’s existing assets as a whole.

jeff jeffy answered 2 years ago

The firm is financed by 40% of debt and 60% of equity. It has the weigthed...

The firm is financed by 40% of debt and 60% of equity. It has the weigthed average cost of capital of 15%. The cost of equity is 25%. What is the cost of debt? Assume that there are no taxes.And think about another situation. The firm is financed by 40% of debt and 60% of equity. It has the weigthed average cost of capital of 15%. The cost of debt is 8%. What is the cost of equity? Assume that...

Shine Industries capital structure contains 40% debt and 60% equity. Its after-tax cost of debt is...

Shine Industries capital structure contains 40% debt and 60% equity. Its after-tax cost of debt is 10% and investors require an 19% return on the firm's common stock. Shine has no preferred stock outstanding and the value of its debt, VD, is 65,000,000. It has 8,250,000 shares of common stock outstanding. The firm's free cash flow (FCF) in the immediate past year was $10,000,000 and it is expected to grow at a compound annual rate of 13% over the next...

Give the data: Cost of equity: 5% Cost of debt: 7% %debt: 60% %Equity: 40% what...

Give the data: Cost of equity: 5% Cost of debt: 7% %debt: 60% %Equity: 40% what is the weighted average cost of capital of this company? A: 3.7% B: 5.9% C: 6.2% D: 4.0%

Evans Technology has the following capital structure. Debt 40 % Common equity 60 The aftertax cost...

Evans Technology has the following capital structure. Debt 40 % Common equity 60 The aftertax cost of debt is 8.00 percent, and the cost of common equity (in the form of retained earnings) is 15.00 percent. a. What is the firm’s weighted average cost of capital? (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a...

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...

A firm raises capital with issuing debt (60%) and prefer stocks (40%). It will sell a...

A firm raises capital with issuing debt (60%) and prefer stocks (40%). It will sell a 12-year bond with 9% coupon rate that will semiannually be paid. The firm is about to sell prefer stock that has $100 par value and pays 12.8 % of par value as dividend per year. Its current BOND price is set to $120 and floatation cost of this issuance is 3%. (tax rate is 40%) Compute cost of debt Compute cost of prefer stock...

David Ortiz Motors has a target capital structure of 40% debt and 60% equity.

Managerial Finance 650Problem 9-08 (WACC)David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 10%, and the company's tax rate is 25%. Ortiz's CFO has calculated the company's WACC as 10.2%. What is the company's cost of equity capital?Round your answer to the nearest whole number.

Petro Co. has a target capital structure that consists of 60% debt, and 40% equity, the...

Petro Co. has a target capital structure that consists of 60% debt, and 40% equity, the company is considering a project (capital budget) that costs $1,500,000 for the coming year. It is forecasting net income of $800,000. 1- The equity needed for the capital budget is: * $900,000 $600,000 $480,000 $320,000 None of the above 2- If the company needs to expand its project, the dividend it can pay for shareholders is: * $0 $200,000 $320,000 $480,000 None of the...

Now imagine that Tiger Pros is 60% financed with equity and 40% financed with debt. Cost...

Now imagine that Tiger Pros is 60% financed with equity and 40% financed with debt. Cost of equity is 16.5% and after-tax cost of debt is 11%. It has the same perpetual EBIT of $500 a year but has a $120 perpetual interest expense. The firm is subject to a 21% tax rate. What is the market value of Tiger Pros?

The Happy Company have an optimal capital structure that consists of 40% debt and 60% common equity.

WEIGHTED AVERAGE COST OF CAPITALThe Happy Company have an optimal capital structure that consists of 40% debt and 60% common equity. They expect to have $30,000,000 of new retained earnings available for investment for the next year.• BONDS. Their investment bankers assure them that they could issue $8,000,000 (net of flotation costs) of $1000 face value bonds carrying a 10% coupon rate, paying annual interest, having a 10-year maturity, at a price of $900. Flotation costs for this issue would...

Question