10. LMB Inc. is looking to invest in new production machinery. The market value of common stock is $44 million, the market value of preferred stock is $9 million, and the market value of total debt is $33 million. Analysts have calculated the cost of common equity to be 16%, the cost of preferred equity to be 12%, and the cost of debt to be 9.5%. If the marginal tax rate of LMB Inc. is 34%, then what is the weighted average cost of capital? After Tax Before Tax After Tax Required Rate of Return for Required Rate of Return for % Allocation in Each Capital Source Weighted Average Required Rate of Return Sources of Market Values of Each Capital Source Capital Capital Sources Each Capital Source kdat-kabr (1-t) Common Stock 0. Preferred $ Stock 0. Debt $ 0. Weighted Average Costs of Capital (WACC) Total Value $ 206

Question
10. LMB Inc. is looking to invest in new production machinery. The market value of common stock is $44
million, the market value of preferred stock is $9 million, and the market value of total debt is $33
million. Analysts have calculated the cost of common equity to be 16%, the cost of preferred equity to
be 12%, and the cost of debt to be 9.5%. If the marginal tax rate of LMB Inc. is 34%, then what is the
weighted average cost of capital?
After Tax
Before Tax
After Tax
Required Rate
of Return for
Required Rate
of Return for
% Allocation in
Each Capital
Source
Weighted
Average
Required Rate
of Return
Sources of
Market Values of
Each Capital
Source
Capital
Capital Sources
Each Capital
Source
kdat-kabr (1-t)
Common
Stock
0.
Preferred
$
Stock
0.
Debt
$
0.
Weighted Average Costs of Capital (WACC)
Total Value
$
206

Image Transcription

10. LMB Inc. is looking to invest in new production machinery. The market value of common stock is $44 million, the market value of preferred stock is $9 million, and the market value of total debt is $33 million. Analysts have calculated the cost of common equity to be 16%, the cost of preferred equity to be 12%, and the cost of debt to be 9.5%. If the marginal tax rate of LMB Inc. is 34%, then what is the weighted average cost of capital? After Tax Before Tax After Tax Required Rate of Return for Required Rate of Return for % Allocation in Each Capital Source Weighted Average Required Rate of Return Sources of Market Values of Each Capital Source Capital Capital Sources Each Capital Source kdat-kabr (1-t) Common Stock 0. Preferred $ Stock 0. Debt $ 0. Weighted Average Costs of Capital (WACC) Total Value $ 206

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