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H2X Incorporated has accounts payable of $400,000 (a typical amount for the company, non-interest bearing), a bank loan of $700,000 at 9% interest rate, a
H2X Incorporated has accounts payable of $400,000 (a typical amount for the company, non-interest bearing), a bank loan of $700,000 at 9% interest rate, a bank loan of $1,000,000 at 6.5% interest rate, and equity of $2,800,000. Its income tax rate is 32%. Management estimates the companys cost of equity is 14%.
- Company managers are considering selling more stock to raise $500,000 of new equity to purchase $500,000 of new manufacturing equipment. What would the new weighted average cost of capital be if this plan were implemented?
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