A company is seeking to invest in a new line of business costing $10M over a planning horizon of 10-year timeframe. The following table lists the essential data for you to compute the after tax weighted average cost of capital assuming a marginal tax rate of 30%

Weighted Cost of Capital (After Tax)	After Tax.	Ignore Flotat. Cost		Tax Rate = 30%
CAPITAL REQUIRED $10M OVER 10-YEAR PERIOD
		Weights	Cost %	BT Weighted Cost	AT Weighted Cost
Financing	$M Value	$Value/Total	See Class Notes	Columns 3x4
debt $1,000 Face Value	5.00			*
preferred stock	1.00
new common stock	3.00
retained earnings	1.00	____		_____	_____
TOTAL		Total
* See Excel bond Exp. Return = Yield to M.

Assumptions:

1. $1,000 bond selling for $1,040 paying 12%

2. Preferred stock selling for $16.50 paying $1.00
3. Common stock will pay $2.00 selling for 50.00 with a growth rate (g) = 4.0%

Based on the information above answer the following questions. and show the process as best you can and explain what the % means in terms of capital budgeting decisions

a. What will be the before tax weighted average cost of capital? ____ %

b. What will be the after tax weighted average cost of capital ? _____ %

c. Explain the importance of the weighted average cost of capital after tax to the business for decision making.

A company is seeking to invest in a new line of business costing $10M over a planning horizon of 10-year timeframe. The following table lists the essential data for you to compute the after tax weighted average cost of capital assuming a marginal tax rate of 30%

Weighted Cost of Capital (After Tax)	After Tax.	Ignore Flotat. Cost		Tax Rate = 30%
CAPITAL REQUIRED $10M OVER 10-YEAR PERIOD
		Weights	Cost %	BT Weighted Cost	AT Weighted Cost
Financing	$M Value	$Value/Total	See Class Notes	Columns 3x4
debt $1,000 Face Value	5.00			*
preferred stock	1.00
new common stock	3.00
retained earnings	1.00	____		_____	_____
TOTAL		Total
* See Excel bond Exp. Return = Yield to M.

Assumptions:

1. $1,000 bond selling for $1,040 paying 12%

2. Preferred stock selling for $16.50 paying $1.00
3. Common stock will pay $2.00 selling for 50.00 with a growth rate (g) = 4.0%

Based on the information above answer the following questions. and show the process as best you can and explain what the % means in terms of capital budgeting decisions

a. What will be the before tax weighted average cost of capital? ____ %

b. What will be the after tax weighted average cost of capital ? _____ %

c. Explain the importance of the weighted average cost of capital after tax to the business for decision making.

A company is seeking to invest in a new line of business costing $10M over a planning horizon of 10-year timeframe. The following table lists the essential data for you to compute the after tax weighted average cost of capital assuming a marginal tax rate of 30%

Weighted Cost of Capital (After Tax)	After Tax.	Ignore Flotat. Cost		Tax Rate = 30%
CAPITAL REQUIRED $10M OVER 10-YEAR PERIOD
		Weights	Cost %	BT Weighted Cost	AT Weighted Cost
Financing	$M Value	$Value/Total	See Class Notes	Columns 3x4
debt $1,000 Face Value	5.00			*
preferred stock	1.00
new common stock	3.00
retained earnings	1.00	____		_____	_____
TOTAL		Total
* See Excel bond Exp. Return = Yield to M.

Assumptions:

1. $1,000 bond selling for $1,040 paying 12%

2. Preferred stock selling for $16.50 paying $1.00
3. Common stock will pay $2.00 selling for 50.00 with a growth rate (g) = 4.0%

Based on the information above answer the following questions. and show the process as best you can and explain what the % means in terms of capital budgeting decisions

a. What will be the before tax weighted average cost of capital? ____ %

b. What will be the after tax weighted average cost of capital ? _____ %

c. Explain the importance of the weighted average cost of capital after tax to the business for decision making.