A company has a beta of 1.8, pre-tax cost of debt of 5% and an effective corporate tax rate of 20%. 40% of its capital structure is debt and the rest is equity. The current risk-free rate is 1.5% and the expected market return is 5.5%. What is this company's weighted average cost of capital? Answer in percent, rounded to one decimal place.

A company has a beta of 1.8, pre-tax cost of debt of 5% and an effective corporate tax rate of 20%. 40% of its capital structure is debt and the rest is equity. The current risk-free rate is 1.5% and the expected market return is 5.5%. What is this company's weighted average cost of capital? Answer in percent, rounded to one decimal place.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

A firm has only two funding sources, debt and equity. Their percentage of debt is 58%, their tax rate is 21.6%, and their pretax cost of debt is 3.05%, If the required return on their equity is 10.39%, then what is their weighted average cost of capital? State your answer as a percentage with two decimal places (i.e., 13.21, not.1321).
WACC
Crowley Company has a capital structure with 30% debt at a 9% interest rate. Its beta is 1.3, the risk-free rate is 1.5%, and the market risk premium is 8%. The company has no preferred stock. Its combined federal-plus-state tax rate is 25%. a. Calculate the company's cost of equity b. Calculate the company's weighted average cost of capital c. Calculate he the company’s unlevered cost of equity
What is the weighted average cost of capital for a corporation that finances an expansion project using 40% retained earnings and the rest as debt capital? Assume the interest rates are 13% for equity financing and 27% for debt financing. The rate of return per quarter is __ % The rate of return per year is __%
A company has a WACC of 10%. It can borrow at 4%. Assume that the company has a target capital structure of 60% equity, 40% debt. The corporate tax rate is 20%. Based on MM Theory with taxes, what is the cost of equity? What is the WACC?
A levered firm has a pretax cost of debt of 6.8 percent and an unlevered cost of capital of 14 percent. The tax rate is 21 percent and the cost of equity is 17.7 percent. What is the debt-to-equity ratio? O 0.65 0.47 0.41 O 0.52
CoffeeCarts has a cost of equity of 15.1%, has an effective cost of debt of 3.8%, and is financed 69% with equity and 31% with debt. What is this firm's WACC? CoffeeCarts's WACC is __ % ? (Round to one decimal place.)
A company is considering its optimal capital structure. The firm currently has 1 million shares outstanding at $ 20 per share (tax rate = 40%) and a debt balance of $5 million. Currently, its (levered) beta is 1.5 and its ERP is 5.5%. The current risk-free rate is 5%. Your research indicate the following ratings and pre-tax cost of debt across the different debt ratios: D/(D+E) Rating Pre-tax cost of debt 0% AAA 10% 10% AA 10.5% 20% A 11% 30% BBB 12% 40% BB 13% 50% B 14% 60% CCC 16% 70% CC 18% 80% C 20% 90% D 25% a. Using the optimal WACC approach, what is the firm's optimal debt ratio? b. Calculate the company's unlevered value, assuming that the probability of default is 5% and the company loses 30% of its value in the event of a default.
The ABC Company has a cost of equity of 21.2 percent, a pre-tax cost of debt of 5.2 percent, and a tax rate of 30 percent. What is the firm's weighted average cost of capital if the proportion of debt is 65.6%?
K. Bell Jewelers wishes to explore the effect on its cost of capital of the rate at which the company pays taxes. The firm wishes to maintain a capital structure of 30% debt, 20% preferred stock, and 50% common stock. The cost of financing with retained earnings is 13% the cost of preferred stock financing is 9%, and the before-tax cost of debt financing is 7%. Calculate the weighted average cost of capital (WACC) given a tax rate of 21%.
a firm has an asset base with a market value of 5.3 million. ITs debt is worth 2.5 million. if 0.2 million is paid in interest annually and the shareholders expect a 16% annual return, what is the weighted average cost of capital assuming no corporate taxes? what is the WACC if corporate taxes are 45%?
A firm is firanced with market values of $295 million in nsk-free debt and $575 million in equity. The firm's asset beta is 0.93. Assume a risk-free rate of 2.5%, a market risk-premium of 6.2% and a tax rate of 25%. Assume the firm's debt beta is 0. What is the firms after- tax weighted average cost of capital? (answer to the fourth decimal place)

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