A new utility had $10M in start-up capital, and it has sold $45M in bonds at 7% to raise money for electric power generation and connecting to the existing power grid. There were some cash flow problems so it had to borrow $2.5M at 11%. The stockholders expect a 15% rate of return, and the combined tax rate is 25%. What is the utility’s beforeand after-tax costs of capital?
A new utility had $10M in start-up capital, and it has sold $45M in bonds at 7% to raise money for electric power generation and connecting to the existing power grid. There were some cash flow problems so it had to borrow $2.5M at 11%. The stockholders expect a 15% rate of return, and the combined tax rate is 25%. What is the utility’s beforeand after-tax costs 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 new utility had $10M in start-up capital, and it has sold $45M in bonds at 7% to raise money for electric power generation and connecting to the existing power grid. There were some cash flow problems so it had to borrow $2.5M at 11%. The stockholders expect a 15%
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