Project #80503 - Finance Homework

 

Problem 9-2        
         
A company is 40% financed by risk-free debt. The interest rate is 10%, the expected market risk premium is 8%, and the beta of the company’s common stock is .5.
         
Risk Free Debt Interest Rate Market Risk Premium Beta Taxes
40% 10% 8% 0.5 35%
         
a.      What is the company cost of capital?     
b.      What is the after-tax WACC, assuming that the company pays tax at a 35% rate?  
         
Answers:        
         
Step 1:        
r(d)=  10%      
r(e)= 0.08      
D/V 0.6   TIP: D + E = V  
E/V 0.4      
         
Step 2:        
a.   Formula (in words) Calculation  
  Cost of Capital T C  
         
b. WACC T C  
 

 

 

     

 

 

Subject Business
Due By (Pacific Time) 08/30/2015 11:59pm
Report DMCA
TutorRating
pallavi

Chat Now!

out of 1971 reviews
More..
amosmm

Chat Now!

out of 766 reviews
More..
PhyzKyd

Chat Now!

out of 1164 reviews
More..
rajdeep77

Chat Now!

out of 721 reviews
More..
sctys

Chat Now!

out of 1600 reviews
More..
sharadgreen

Chat Now!

out of 770 reviews
More..
topnotcher

Chat Now!

out of 766 reviews
More..
XXXIAO

Chat Now!

out of 680 reviews
More..
All Rights Reserved. Copyright by AceMyHW.com - Copyright Policy