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2. Kareem Construction Company has the following amounts of interest-bearing debt and common equity capital: FINANCING SOURCE Short-term loan Long-term loan Equity capital DOLLAR AMOUNT
2. Kareem Construction Company has the following amounts of interest-bearing debt and common equity capital: FINANCING SOURCE Short-term loan Long-term loan Equity capital DOLLAR AMOUNT $200,000 $200,000 $600,000 INTEREST RATE 12% 14% COST OF CAPITAL 22% Kareem Construction is in the 30 percent average tax bracket. A. Calculate the after-tax WACC for Kareem. B. Show how Kareem's WACC would change if the tax rate dropped to 25 percent and the estimated cost of equity capital were based on a risk-free rate of 7 percent, a market risk premium of 8 percent, and a systematic risk measure or beta of 2.0.
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