You have estimated the after-tax cost of debt to be 5.5%, the cost of preferred to...
You have estimated the after-tax cost of debt to be 5.5%, the cost of preferred to be 6.5% and the cost of common to be 8.6%. Your firm obtains 40% of its financing from long-term debt, 20% of its financing from preferred stock and 40% of its financing from common stock. Calculate the firm’s cost of capital.
List two reasons why the cost of common stock financing is higher than the effective cost of debt financing for firms.
Homework Answers
1.
=40%*5.5%+20%*6.5%+40%*8.6%=6.94000%
2.
1. Common stock does not guranatee any fixed payments but debt does
and hence common stock is riskier due to which investors demand
higher return
2. Dividends are taxable but interest payments are tax exempt due to which after tax cost of debt is lower than cost of equity
Add Answer to:
You have estimated the after-tax cost of debt to be 5.5%, the
cost of preferred to...
A. Calculate the after-tax cost of debt. b. Calculate the cost of preferred stock. c. Calculate t...
a. Calculate the after-tax cost of debt.
b. Calculate the cost of preferred stock.
c. Calculate the cost of common stock (both retained earnings
and new common stock).
d. Calculate the WACC for Dillon Labs.
Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights:...
WACC caculation. Bartlett Coomany's target capital structure is 40% debt, 15% preferred,45%common equity.The after-tax cost debt...
WACC caculation. Bartlett Coomany's target capital structure is 40% debt, 15% preferred,45%common equity.The after-tax cost debt is 6.00%, the cost of preferred is 7.50% and the cost of common using reinvested earnings is 12.75%.The firm will not be issuing any new stock. You were hired as a consultant to help determine their cost of capital.What is its weighted cost of capital (WACC)?
You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 11.50%. The fir
You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 11.50%. The firm will not be issuing any new stock. What is its WACC?
The after-tax cost of debt is 6%. The cost of preferred stock is 8% and the...
The after-tax cost of debt is 6%. The cost of preferred stock is 8% and the cost of equity is12.0% The stock price is %40. There are 4 million shares of stock. The market values of the firm’s preferred stock and bonds are $30M and $80M, respectively. Find the WACC for HMI Inc.
Compute the weighted average cost of capital given: The before tax cost of debt is 10.5%...
Compute the weighted average cost of capital given: The before tax cost of debt is 10.5% The cost of preferred stock is 11.75% The cost of common stock equity is 13% The tax rate is 40% The sources of capital are: Long term debt 40% Preferred stock 15% Common stock equity ????? Use the following format for your answer: 7.50%
A firm has determined its target capital structure and it after-tax cost for each source of...
A firm has determined its target capital structure and it after-tax cost for each source of capital. What is the firm's weighted average cost of capital (WACC)? (Enter your answers as a percentge rounded to 2 decimal places) Cost 49 Source of Capital Long-term Debt (after taxes) Preferred Stock Common Stock Proportion 30% 10% 60% 10% 16% Your Answer: Answer Hide hint for Question 11 Weight average cost of capital= weight of long-term debt cost of debt(after tax)+weight of preferred...
Compute the weighted average cost of capital given: The before tax cost of debt is 9.5%...
Compute the weighted average cost of capital given: The before tax cost of debt is 9.5% The cost of preferred stock is 10.75% The cost of common stock equity is 12% The tax rate is 40% The sources of capital are: Long term debt 48% Preferred stock 12% Common stock equity ????? answer using the format: 9.99%
King’s Corp has determined that its before-tax cost of debt is 9.0%. Its cost of preferred...
King’s Corp has determined that its before-tax cost of debt is 9.0%. Its cost of preferred stock is 12.0%. Its cost of internal equity is 15.0%, and its cost of external equity is 17.0%. Currently, the firm's capital structure has $600 million of debt, $50 million of preferred stock, and $350 million of common equity. The firm's marginal tax rate is 40%. The firm is currently making projections for next period. Its managers have determined that the firm should have...
1. The after-tax cost of debt is higher than the before-tax cost of debt. True or...
1. The after-tax cost of debt is higher than the before-tax cost of debt. True or False 2. The constant dividend growth model and CAPM are two ways of estimating a firm's cost of equity. True or False 3. The cost of capital uses the amounts of total assets and debt as the capital structure weights. True or False 4. In deriving the WACC, market values are preferred over book values for the capital structure weights. True or False 5....
a. The after-tax cost of debt using the bond's yield to maturity (YTM) is The after-tax...
a. The after-tax cost of debt using the bond's yield to
maturity (YTM) is
The after-tax cost of debt using the approximation formula
is
b. The cost of preferred stock is
c. The cost of retained earnings is
The cost of new common stock is
d. Using the cost of retained earnings, the firm's WACC
is
Using the cost of new common stock, the firm's WACC is
X P9-17 (similar to) Question Help Calculation of individual costs and WACC Dillon...
a. Calculate the after-tax cost of debt.
b. Calculate the cost of preferred stock.
c. Calculate the cost of common stock (both retained earnings
and new common stock).
d. Calculate the WACC for Dillon Labs.
Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights:...
A firm has determined its target capital structure and it after-tax cost for each source of capital. What is the firm's weighted average cost of capital (WACC)? (Enter your answers as a percentge rounded to 2 decimal places) Cost 49 Source of Capital Long-term Debt (after taxes) Preferred Stock Common Stock Proportion 30% 10% 60% 10% 16% Your Answer: Answer Hide hint for Question 11 Weight average cost of capital= weight of long-term debt cost of debt(after tax)+weight of preferred...
a. The after-tax cost of debt using the bond's yield to
maturity (YTM) is
The after-tax cost of debt using the approximation formula
is
b. The cost of preferred stock is
c. The cost of retained earnings is
The cost of new common stock is
d. Using the cost of retained earnings, the firm's WACC
is
Using the cost of new common stock, the firm's WACC is
X P9-17 (similar to) Question Help Calculation of individual costs and WACC Dillon...
Most questions answered within 3 hours.
-
1. You have genotyped an entire population of lab mice for a
single locus (let's label...
asked 38 minutes ago -
As part of the process for improving the quality of their cars,
Toyota engineers have identified...
asked 40 minutes ago -
What is the relationship between the number of coils in a
solenoid and the emf induced...
asked 1 hour ago -
cell in human body reproduces. what process does it use? describe
the steps in the cell...
asked 1 hour ago -
The cheetah is one of the fastest accelerating animals, for it
can go from rest to...
asked 3 hours ago -
CaCO3 (s) ⇌ CaO (s) + CO2 (g)
At 637 °C, the reaction reaches equilibrium.
If...
asked 4 hours ago -
The condensate from a steam distillation contains 12.0 g of
compound A and 18.0 g of...
asked 7 hours ago -
A major economic benefit of fixed exchange rates compared to
floating rates is that
a. the...
asked 7 hours ago -
1) For this reaction,
SiCl4 (l)+ 2H2O(g) <->
SiO2 (s) + 4HCl (g) DeltaH = -127 KJ...
asked 7 hours ago -
Which of the following does NOT add to US GDP? A. Saudi Arabia
buys fighter jets...
asked 8 hours ago -
2. Describe market equilibrium in terms of the following
characteristics
d.
How supply and demand interactions...
asked 8 hours ago -
1a. Create a class named Computer
- Separate declaration from implementation (i.e. Header and CPP
files)...
asked 8 hours ago