Question
The following information applies to the next 4 questions. The current market rate of return, E(RM) is 12% and the risk-free rate, RF is 4%.
The following information applies to the next 4 questions.
| The current market rate of return, E(RM) is 12% and the risk-free rate, RF is 4%. You have been given the job of determining your firm's cost of capital components. The company has 100,000 shares outstanding with a current market value of $60 per share. The debt represents 20% of the capital structure in market value and the yield to maturity is 8%. The beta of the equity is 1.0 and the tax rate is 30%. |
What is the market value of the firm's debt?
| $1 mil | ||
| $1.25 mil | ||
| $1.5 mil | ||
| $1.75 mil | ||
| $ 2 mil |
What is the required rate of return on equity?
| 12% | ||
| 13.4% | ||
| 15.2% | ||
| 15.8% | ||
| 16.4% |
What is the after-tax cost of debt?
| 4.8% | ||
| 5.6% | ||
| 5.8% | ||
| 7.4% | ||
| 8.0% |
What is the firm's WACC?
| 10.7% | ||
| 11.4% | ||
| 12.75% | ||
| 13.0% | ||
| 13.25% |
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International Institutions In Trade And Finance
Authors: Alasdair I. MacBean, P. N. Snowden
1st Edition
0043820336, 9780043820339
