ZuoTi.Pro
Question

Suppose the weighted average cost of capital of company is 10%. If company has a capital...

Suppose the weighted average cost of capital of company is 10%. If company has a capital structure of 50% debt and 50% equity, a before-tax cost of debt of 5%, and a marginal tax rate of 20%, then its cost of equity capital is closet to:
a) 12%
b) 14%
c) 16%

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Wd X Kd +We X Ke WACC 0.50x 4% +0.5XKE 10%= 0.50 x ke 0.08 16% ke Cost of equity 16%

0 0
Add a comment
Know the answer?
Add Answer to:
Suppose the weighted average cost of capital of company is 10%. If company has a capital...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Please provide solution, also 1. (Capital structure) Suppose the weighted average cost of capital of Gadget...

    Please provide solution, also 1. (Capital structure) Suppose the weighted average cost of capital of Gadget Company is 10%. If Gadget has a capital structure of 50% debt and 50% equity, a before-tax cost of debt of 5%, and a marginal tax rate of 20%, then its cost of equity capital is closest to: (a) 12% (b) 14% (c) 16%

  • Suppose the cost of capital of the Blossom Company is 14 percent. If Blossom has a...

    Suppose the cost of capital of the Blossom Company is 14 percent. If Blossom has a capital structure that is 50 percent debt and 50 percent equity, its before-tax cost of debt is 8 percent, and its marginal tax rate is 20 percent, then its cost of equity capital is closest to: 16.8 percent. 14.8 percent. 18.8 percent. 20.8 percent.

  • Central Systems desires a weighted average cost of capital of 12 percent. The firm has a...

    Central Systems desires a weighted average cost of capital of 12 percent. The firm has a before-tax cost of debt of 5 percent and a cost of equity of 15.2 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital if the tax rate is 20%? a. 0.67 b. 0.56 c. 0.60 d. 0.40 e. 1.78

  • Calculate the weighted average cost of capital and the weighted average flotation cost for a company...

    Calculate the weighted average cost of capital and the weighted average flotation cost for a company with the following data: Debt​ ​ ​400,000 Equity​ 500,000 Rate on debt ​7% Rate on equity​ 14% Flotation rate on debt​ 3% Flotation rate on equity​ 2% Tax rate​ 21%

  • 6. 6: The Cost of Capital: Weighted Average Cost of Capital The Cost of Capital: Weighted...

    6. 6: The Cost of Capital: Weighted Average Cost of Capital The Cost of Capital: Weighted Average Cost of Capital The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have...

  • Weighted average cost of capital

    ---Jeremy Publishing Company is trying to calculate its cost of capital for use in a capital budgeting decision. Mr. Mouthwash, the vice-president of finance, has given you the following information and asked you to compute the weighted average cost of capital. The company currently has outstanding a bond with an 6.0 percent coupon rate and a convertible bond with a 3.0 percent rate. The firm has been informed by its investment dealer, John Travolta, and Company, that bonds of equal risk...

  • The weighted average cost of capital: American​ Exploration, Inc., a natural gas​ producer, is trying to...

    The weighted average cost of capital: American​ Exploration, Inc., a natural gas​ producer, is trying to decide whether to revise its target capital structure. Currently, it targets a 50​-50 mix of debt and​ equity, but it is considering a target capital structure with 80​% debt. American Exploration currently has 5​% ​after-tax cost of debt and a 10​% cost of common stock. The company does not have any preferred stock outstanding. a.  What is American​ Exploration's current​ WACC? b.  Assuming that...

  • * Your answer is incorrect. Suppose the cost of capital of the Carla Vista Company is...

    * Your answer is incorrect. Suppose the cost of capital of the Carla Vista Company is 11 percent. If Carla Vista has a capital structure that is 50 percent debt and 50 percent equity, its before-tax cost of debt is 6 percent. and its marginal tax rate is 20 percent, then its cost of equity capital is closest to: 15.0 percent 11.0 percent. 17.0 percent. • 13.0 percent eTextbook and Media Attempts: 2 of 3 used Save for Later Submit...

  • Question 24 (1 point) A company wants to achieve a weighted average cost of capital of...

    Question 24 (1 point) A company wants to achieve a weighted average cost of capital of 10.36%. The company has a before-tax cost of debt of 8.46% and a cost of equity of 12.26%. If the tax rate is 30%, what debt-to-equity ratio is needed for the company to achieve its target weighted average cost of capital? 0.407 0.417 0.428 0.439 0.450

  • Suppose the cost of capital of the Gadget Company is 11 percent. If Gadget has a...

    Suppose the cost of capital of the Gadget Company is 11 percent. If Gadget has a capital structure that is 57 percent debt and 43 percent equity, its before-tax cost of debt is 6 percent, and its marginal tax rate is 20 percent, then its cost of equity capital is closest to: Entry field with incorrect answer now contains modified data 14.2 percent. 16.2 percent. 12.2 percent. 18.2 percent.

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT