onsider a company with the following capital structure and subject to a company tax rate of 30%:   Market Value Market Yield (before-tax) Ordinary shares $2,000,000 16% Preference shares $1,000,000 15% Bonds $2,000,000 12% Calculate the after-tax weighted average cost of capital for the company Explain why the market yields for ordinary shares and preference shares do not need to be adjusted for taxation

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Consider a company with the following capital structure and subject to a company tax rate of 30%:

 

Market Value

Market Yield (before-tax)

Ordinary shares

$2,000,000

16%

Preference shares

$1,000,000

15%

Bonds

$2,000,000

12%

Calculate the after-tax weighted average cost of capital for the company

Explain why the market yields for ordinary shares and preference shares do not need to be adjusted for taxation

 

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