Question
Bolero, Inc., has compiled the following information on its financing costs: Type of Financing Book Value Market Value Cost Short-term debt $12,000,000 $12,500,000 4.1% Long-term
Bolero, Inc., has compiled the following information on its financing costs:
Type of Financing Book Value Market Value Cost Short-term debt $12,000,000 $12,500,000 4.1% Long-term debt 20,000,000 23,000,000 7.2 Common stock 9,000,000 54,000,000 13.8 Total $41,000,000 $89,500,000
The company is in the 35 percent tax bracket and has a target debt-equity ratio of 60 percent. The target short-term debt/long-term debt ratio is 20 percent. a. What is the company's weighted average cost of capital using book value weights? b. What is the company's weighted average cost of capital using market value weights?
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