Question
The following table shows the companys capital structure. Assume the effective annual tax rate is 21%. Source of capital Amount Other information Loans $1,500,000 X
The following table shows the companys capital structure. Assume the effective annual tax rate is 21%.
| Source of capital | Amount | Other information |
| Loans | $1,500,000 | X% nominal loan rate, semiannually compounded |
| Bonds | $3,500,000 | Effective after-tax rate: 5.44% |
| Stock | $ 3,000,000 | $5.00 dividends on selling price of $50 per share |
| Retained earnings | $2,000,000 | Cost of capital: 0.1 |
The after-tax effective annual interest rate for the loan is 8.0975%. What is x in the above table?
What is the cost of capital for the stock? Use the simple dividend evaluation model.
What is the weighted average cost of capital for this company?
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Finance And Industrial Policy
Authors: Giovanni Cozzi, Susan Newman, Jan Toporowski
1st Edition
0198744501, 978-0198744504
