Question

no 31, with calculations pls.

ililea Stock Common Stock (Internal Only) 40% found 15% ri-Tuant). Component Cost 7.5% 5% 11% 55% The company's marginal tax rate is 40%. A) 13.3% B) 7.1% -(7.5 "To (-40%40 +15%.8 117)+(35%815%) C) 10.6% 750 903 4) doslid) +0.55 X (57) D) 10% - 1.8% to 55718.257 - 10.6 31) Kokapeli, Inc. has a target capital structure of 40% debt and 60% common equity, and has a 40% marginal tax rate. If the firm's yield to maturity on bonds is 7,5% and investors require a 15% return on the firm's common stock, what is the firm's weighted average cost of capital? A) 7.20% (B) 10.80% C) 12.00% D) 12.25% (32) PrimaCare has a capital structure that consists of $7 million of debt, $2 million of preferred stock, and $11 million of common equity, based upon current market values. The firm's yield to maturity on its bonds is 7.4%, and investors require an 8% return on the firm's preferred and a 14% return on PrimaCare's common stock. If the tax rate is 35%, what is PrimaCare's WACC? A) 7.21% WAU B) 8.12% C) 10.18% D) 12.25% -ce1000 and a coupon rate of 5%. The bond matures in 15 years Abatian costs

Answer 1

Weighted Average Cost of Capital is

0.6*0.15+0.4*0.075 (1-0.4) equals to 0.108 i.e. 10.80%

Weighted Average Cost of Capital is summation of Proportion share of Equity investment and Debt investment after considering the Tax Rate.

In this case proportion of Equity is 60% with Reuired Return 15% hence the 60%*15% = 9%

Debt Proportion is 40% and investment in Bonds yielding 7.5% having Tax Rate of 40% hence post Tax Debt Returns is 40%*7.5%*(1-40%) = 1.8%

Sum of both Equity and Debt Investment is 10.8%