Question
A firm with a 40 percent marginal tax rate has a capital structure of $50,000 in debt and $150,000 in equity. What is the firms
A firm with a 40 percent marginal tax rate has a capital structure of $50,000 in debt and $150,000 in equity. What is the firms weighted cost of capital if the marginal pretax cost of debt is 10 percent, and the cost of equity is 15 percent? Show All Work
a. 10.21% b. 13.97% c. 12.75% d. 12.13%
The CFO of Gibb Industries hired you as a consultant to help estimate its cost of capital. You have obtained the following data: rRF= 4%(risk-free), RPM= 6.00% (market risk premium), and b = 1.40. Do = $1.25 (current dividend), P0= $28, and g = 6% (constant). You were asked to estimate the cost of equity based on the two most commonly used methods (CAPM and DCF) then to indicate the difference between the two estimates. What is that difference? Show All Work
Rosin Systems Inc. is expected to pay a $2.50 dividend at year end (D1= $2.80), the dividend is expected to grow at a constant rate of 8% a year, and the common stock currently sells for $50 a share. The before-tax cost of debt is 6%, and the tax rate is 40%. The target capital structureconsists of 30% debt and 70% common equity. What is the companys WACC if all the equity used is from retained earnings? Show All Work
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