Homework Answers
Tax advantage is available only on debt component of capital as interest paid on debt is tax deductible
When tax rate decreases, WACC will increase by Cost of Debt*Decrease in Tax rate*Weight of Debt
= 17%*8%*30%
= 0.408
Hence, the answer is Increase of 0.408%
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1 pts Question 2 Escrow House Co. has a desired capital structure of 20-30-50 (preferred shares,...
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Pharoah Co. has a capital structure, based on current market values, that consists of 30 percent...
Pharoah Co. has a capital structure, based on current market
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I solved it wrong by doing 30%*12*(1-40%)+13%*12%*+65%*15%=
0.021600 + 0.015600 + 0.097500=
0.1347=13.47%
I am not...
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please help Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and...
please help
Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2% if its current tax rate is 40%, how much higher will Turnbull's weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? If Turnbull can...
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Pharoah Co. has a capital structure, based on current market
values, that consists of 30 percent debt, 5 percent preferred
stock, and 65 percent common stock. If the returns required by
investors are 12 percent, 13 percent, and 15 percent for the debt,
preferred stock, and common stock, respectively, what is Pharoah’s
after-tax WACC? Assume that the firm’s marginal tax rate is 40
percent.
I solved it wrong by doing 30%*12*(1-40%)+13%*12%*+65%*15%=
0.021600 + 0.015600 + 0.097500=
0.1347=13.47%
I am not...
Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If its current tax rate is 40%, how much higher will Turnbull's weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? If Tumbull can raise all...
please help
Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2% if its current tax rate is 40%, how much higher will Turnbull's weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? If Turnbull can...
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