Question
The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 10 percent to help finance a new playground facility in Los Angeles. This
The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 10 percent to help finance a new playground facility in Los Angeles. This year the cost of debt is 25 percent higher; that is, firms that paid 12 percent for debt last year will be paying 15.00 percent this year.
a. If the Goodsmith Charitable Foundation borrowed money this year, what would the aftertax cost of debt be, based on their cost last year and the 25 percent increase? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Aftertax cost of debt =
b. If the receipts of the foundation were found to be taxable by the IRS (at a rate of 30 percent because of involvement in political activities), what would the aftertax cost of debt be? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Aftertax cost of debt =
Also, could please find b for this problem? I solved a but am having issues with b! Eaton Electronic Companys treasurer uses both the capital asset pricing model and the dividend valuation model to compute the cost of common equity (also referred to as the required rate of return for common equity).
Assume:
Rf | = | 5 | % | |
Km | = | 7 | % | |
= | 2.1 | |||
D1 | = | $ | .95 | |
P0 | = | $ | 21 | |
g | = | 5 | % | |
a. Compute Ki (required rate of return on common equity based on the capital asset pricing model). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
|
b. Compute Ke (required rate of return on common equity based on the dividend valuation model). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
|
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