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Social Science10. LMB Inc. is looking to invest in new production machinery. The market value of common stock is $44million, the market value of preferred stock is $9 million, and the market value of total debt is $33million. Analysts have calculated the cost of common equity to be 16%, the cost of preferred equity tobe 12%, and the cost of debt to be 9.5%. If the marginal tax rate of LMB Inc. is 34%, then what is theweighted average cost of capital?After TaxBefore TaxAfter TaxRequired Rateof Return forRequired Rateof Return for% Allocation inEach CapitalSourceWeightedAverageRequired Rateof ReturnSources ofMarket Values ofEach CapitalSourceCapitalCapital SourcesEach CapitalSourcekdat-kabr (1-t)CommonStock0.Preferred$Stock0.Debt$0.Weighted Average Costs of Capital (WACC)Total Value$206
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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
Expert Answer
Hence, weight of equity is 51.16%, which is determined by dividing the equity market value with the total of all sources market value.
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Market value of equity Weight of equity Total market value of all the sources $44 million $86 million -51.16%
Hence, weight of preferred stock is 10.46%, which is determined by dividing the preferred stock market value with the total of all sources market value.
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Market value of preferred stock Weight of preferred stock Total market value of all the sources $9 million $86 million =10.46%
Hence, weight of debt is 51.16%, which is determined by dividing the ...
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Market value of debt Weight of Debt Total market value of all the sources $33 million $86 million =38.37%
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