A firm's stockholders expect a 12% rate of return, and there is $20M in common stock and retained earnings. The firm has $7M in loads at an average rate of 9%. The firm has raised $12M by selling bonds at an average rate of 5%. What is the firm's cost of capital?

A firm's stockholders expect a 12% rate of return, and there is $20M in common stock and retained earnings. The firm has $7M in loads at an average rate of 9%. The firm has raised $12M by selling bonds at an average rate of 5%. What is the firm's cost of capital?

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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A firm's stockholders expect a 12% rate of return, and there is $20M in common stock and
retained earnings. The firm has $7M in loads at an average rate of 9%. The firm has raised
$12M by selling bonds at an average rate of 5%. What is the firm's cost of capital?

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