Rumolt Motors has 13 million shares outstanding with a price of ($17) per share. In addition, Rumolt
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Rumolt Motors has 13 million shares outstanding with a price of \($17\) per share. In addition, Rumolt has issued bonds with a total current market value of \($313\) million. Suppose Rumolt’s equity cost of capital is 15%, and its debt cost of capital is 10%.
a. What is Rumolt’s pretax weighted average cost of capital?
b. If Rumolt’s corporate tax rate is 21%, what is its after-tax weighted average cost of capital?
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