Question
IBM has an equity beta of 1.6, market value of debt of $12.08 billion, and market value of equity of $143.48 billion. Its pre-tax cost
IBM has an equity beta of 1.6, market value of debt of $12.08 billion, and market value of equity of $143.48 billion. Its pre-tax cost of debt capital is 7.5% and the tax rate is 35%. What is the weighted average cost of capital (WACC) for IBM if the risk-free rate is 4.6% and the market risk premium is 5%?
a)none of the listed
b)10%
c)17%
d)12%
e)14%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
First lets compute the weights of debt and equity Weight of Debt Wd Market Value of Debt Market ...
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Step: 2
Step: 3
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Fundamentals of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
Concise 6th Edition
324664559, 978-0324664553
