Question
Olympic Industries has a debt-to-equity (D/E) ratio of 0.5. The cost of Debt is 8% and the cost towards ordinary shareholders is 13%. The tax
Olympic Industries has a debt-to-equity (D/E) ratio of 0.5. The cost of Debt is 8% and the cost towards ordinary shareholders is 13%. The tax rate is 40%. Given that the company has no preferred shares;
- What is the weighted average cost of capital (WACC) for Olympic Industries
Trump Hotels currently has $10 million face value of bonds that have five years remaining to maturity, 8 percent coupon with semi-annual payments, and are currently valued at 7.99 Million in total. It also has 1.2 million common shares of stock outstanding and the stock has a beta of 2.2. If Trump Hotels issues up to $2.5 million of new bonds, the bonds will be priced at par and have a yield of 13.65 percent; but if it issues bonds beyond $2.5 million, the expected yield on the entire issuance will be 16 percent. Donald Trump has learned that it can issue new common stock at $10 per share. The current risk-free rate of interest is 3 percent and the expected market return is 10 %. Trumps marginal tax rate is 30 %.
- If Trump wants to raise $7.5 million of new capital while maintaining the same debt-to-equity ratio as it currently has, what will be its weighted average cost of capital (WACC) ?
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