Question

In: Accounting

What is the WACC for a firm with equal amounts of debt and equity financing, a 17% before-tax company cost of capital, a 35% tax rate, and a 10% coupon rate on its debt that is selling at par value?

What is the WACC for a firm with equal amounts of debt and equity financing, a 17% before-tax company cost of capital, a 35% tax rate, and a 10% coupon rate on its debt that is selling at par value?

A. 10.40%

B. 14.25%

C. 15.25%

D. 16.00%

 

Solutions

Expert Solution

What is the WACC for a firm with equal amounts of debt and equity financing, a 17% before-tax company cost of capital, a 35% tax rate, and a 10% coupon rate on its debt that is selling at par value?

C. 15.25%

 

 

Adjustment for tax shield on debt =

D/V interest rate paid tax rate

= .50 .10 .35

= 1.75%

 

WACC =

company cost of capital

- adjustment for tax shield on debt

WACC = 17% - 1.75%

= 15.25%

The WACC for the firm is 15.25%. 

Renze Joy Candido answered 3 years ago
Next > < Previous

Related Solutions

What is the WACC for a firm with equal amounts of debt and equity financing, a 16% before-tax company cost of capital, a 35% tax rate, and a 10% coupon rate on its debt that is selling at par value?
What is the WACC for a firm with equal amounts of debt and equity financing, a 16% before-tax company cost of capital, a 35% tax rate, and a 10% coupon rate on its debt that is selling at par value? A. 10.40% B. 14.25% C. 15.13% D. 16.00%
If equity investors require a 20% rate of return, what is the maximum acceptable amount of equity financing for a project with $2 million annual cash flows before tax and interest, $3 million in debt with a 10% coupon, and a 35% tax rate?
If equity investors require a 20% rate of return, what is the maximum acceptable amount of equity financing for a project with $2 million annual cash flows before tax and interest, $3 million in debt with a 10% coupon, and a 35% tax rate? A. $5.53 million B. $5.87 million C. $8.5 million D. $9.03 million  
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...
if before tax cost of debt rd = 0.12, tax rate (T)=35%, what is the after...
if before tax cost of debt rd = 0.12, tax rate (T)=35%, what is the after tax cost of debt?  
For a 7-year annual bond with a coupon rate of 8%, par value $100, and current market price $120, what is the cost of debt before tax?
For a 7-year annual bond with a coupon rate of 8%, par value $100, and current market price $120, what is the cost of debt before tax?
A firm is 65% equity and 35% debt. The firm's marginal tax rate is 40%. Their...
A firm is 65% equity and 35% debt. The firm's marginal tax rate is 40%. Their bonds trade for $990, mature in nine years, have a par value of $1,000, a coupon rate of 8.00% and pay semi-annually. The firm's common stock trades for $27 and just paid a dividend of $5.00. Dividends are expected to grow at 3% forever. The firm's after tax cost of debt is _____%. PLEASE USE FINNACE CALUATLER FOR ANSWER IF NOT USE BASIC CALUATOR...
Sony Bond Par value ​ $1000 Coupon interest rate 7.0% Corporate tax rate 35% Cost          ​$890...
Sony Bond Par value ​ $1000 Coupon interest rate 7.0% Corporate tax rate 35% Cost          ​$890 Years to maturity 10   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 tax rate. a.  The before-tax cost of the Sony bond using the​ bond's yield to maturity​ (YTM) is ???%. ​(Round to two decimal​ places.) b.  The after-tax cost...
18. Coleman Technologies Inc. is estimating its WACC Tax rate = 40%. Debt value: $15,000. Par...
18. Coleman Technologies Inc. is estimating its WACC Tax rate = 40%. Debt value: $15,000. Par value $1,000, 15-year, 12% coupon, semiannual payment bonds sell for $1,153.72. Shares outing standing: 1000 shares with $35/share. Beta = 1.2; Risk-free rate = 7%; Market risk premium = 6%. Use the above information to answer Q1-4 Q1) What is the company's bond YTM? a)11.5% b)10% c)9.5% d)9% Q2)What is the company's after-tax cost of debt? a)6.6% b)5.4% c)6% d)5.7% Q3) What is the...
Celebrity plc. has a target debt-equity ratio of 0.8. Its WACC is 10.5% and the tax rate is 35 per cent
Celebrity plc. has a target debt-equity ratio of 0.8. Its WACC is 10.5% and the tax rate is 35 per cent (a) If the firm's cost of equity is 15 per cent what is its pre-tax cost of debt? (b) If instead you know that the after-tax cost of debt is 6.4 per cent, what is the cost of equity?
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...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT