Question
1.A firm has a capital structure that is 30% Debt, and 70% equity. Its YTM on current bonds is 9%, and its tax rate is
1.A firm has a capital structure that is 30% Debt, and 70% equity. Its YTM on current bonds is 9%, and its tax rate is 25%. If the WACC is 10.5%, what is the cost of equity?
2.A firm has a 30% tax rate, and a 3% cost to issue new common stock.
It has determined the optimal capital structure as shown in the table below. What is the firm's cost of capital?
| Type of Capital | Capital Structure | Cost of Capital | WACC | |
| $000s | % of total capital | |||
| Debt | 15000 | 0.06 | ||
| Retained Earnings | 47000 | 0.12 | ||
| New Common Stock | 22000 | |||
| Total Capital | ||||
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Introduction To Finance
Authors: Lawrence J Gitman, Jeff Madura
1st Edition
0201635372, 9780201635379
