A company has the following target capital structure and costs: Capital structure Cost of capital Debt 30% 10% Common stock 60% 12% Preferred stock 10% 10% The company's marginal tax rate is 30%. What is the company's weighted-average cost of capital? Group of answer choices 10.30% 7.84% 9.30% 11.20%

A company has the following target capital structure and costs: Capital structure Cost of capital Debt 30% 10% Common stock 60% 12% Preferred stock 10% 10% The company's marginal tax rate is 30%. What is the company's weighted-average cost of capital? Group of answer choices 10.30% 7.84% 9.30% 11.20%

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

K Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 35% long-term debt, 15% preferred stock, and 50% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 29%. Debt The firm can sell for $1025 a 12-year, $1,000-par-value bond paying annual interest at a 7.00% coupon rate. A flotation cost of 2.5% of the par value is required. Preferred stock 9.00% (annual dividend) preferred stock having a par value of $100 can be sold for $96. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $60 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.70 ten years ago to the $4.40 dividend payment, Do, that the company just recently…
F1
If the return on asset (ROA) is 10%, the pre-tax cost of debt is 8%, and the corporate tax rate is 20%. What will the return on equity (ROE) be if the capital structure is 60% equity and 40% debt? Group of answer choices 10% 13.6% 9% 12.4%
QUESTION 42 company s estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free rate (RF) is 5% and the market risk premium (M-[RF) is 6%. Currently the company's cost of equity, which is based on the CAPM, is 14% and its tax rate is 20%. Find the firm's current leveraged beta using the CAPM O 1.0 O 1.5 O 1.6 O 1.7 QUESTION 43 Based on the information from Question 42, find the firm's unleveraged beta using the Hamada Equation O 0.95 O 1.0 O 1.25 O 1.35 QUESTION 44 Based on the information from Question 42 and 43, what would be the company's new leveraged beta if it were to change its capital structure to 50% debt and 50% equity (D/S=1.0) using the Hamada Equation? O 1.25 O 1.35 O 1.95 O 2.25 QUESTION 45 Based on the information from Question 42 ~ 44, what would be the company's new cost of equity if it were to change its capital structure to 50%…
50-If the company’s EBIT is OMR 500,000; market value of the equity is OMR 2,000,000 and value of Debt is OMR 4,000,000; then what is the overall cost of capital of the firm under Net Income Approach? a. 8.33% b. 10% c. 12.5% d. 25%
QUESTION 4 A Company with net operating earnings of shs 300,000 is attempting to evaluate a number of possible capital structures, given below. Which of the capital structures will you recommend and why? Show your analysis. Debt After tax-Cost of Cost of equity debt (%) (%) Capital structure 1 2 3 4 5 300,000 10 400,000 10 500,000 11 600,000 12 700,000 14 12 12.5 13.5 15 18 =
33-Marhaba Company’s capital structure consists entirely of long-term debt and equity. The cost of capital for each component is shown as – before tax cost of debt (kd) 8% and cost of equity (ke) 15%. The proportion of capital for each component is Debt 40% and Equity 60%. What would be weighted average cost of capital of the company? Assume that the corporate tax rate is at 40%. a. 10.92% b. 12.2% c. 10.41% d. 8.88% Clear my choice
13
If the earnings per share of the firm is OMR 10 and the market price is OMR 100 and the growth rate is earning of the firm is 5 %. Calculate the cost of equity share capital. a. 12.5% b. 10% c. None of these d. 15%
None
Review this situation: Universal Exports Inc. is trying to identify its optimal capital structure. Universal Exports Inc. has gathered the following financial information to help with the analysis. Debt Ratio 30% 40% 50% 60% 70% Equity Ratio 70% 60% 50% 40% 30% Id 7.00% 7.20% 7.70% 11.40% 8.90% 12.20% 10.30% 13.50% Is WACC 10.50% 8.61% 10.80% 8.21% 8.01% 8.08% 8.38% Which capital structure shown in the preceding table is Universal Exports Inc.'s optimal capital structure? Debt ratio = 70%; equity ratio = 30% Debt ratio 50%; equity ratio = 50% Debt ratio = 30%; equity ratio = 70% Debt ratio = 40%; equity ratio = 60% Debt ratio= 60%; equity ratio = 40%
What is the company's cost of debt? a. 9.21%b. 10.31%c. 11.5%d. 7.73% What is the company's cost of equity using the Capital Asset Pricing Model? a. 9.21%b. 10.31%c. 11.5%d. 7.73%