A firm is financed 74% by common stock, 6% by preferred stock and 17% by debt. The required return is 13% on the common, 11% on the preferred, and 5% on the debt. If the tax rate is 21% what is the WACC?

A firm is financed 74% by common stock, 6% by preferred stock and 17% by debt. The required return is 13% on the common, 11% on the preferred, and 5% on the debt. If the tax rate is 21% what is the WACC?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter9: The Cost Of Capital

Section9.8: The Weighted Average Cost Of Capital (wacc)

Problem 3ST

See similar textbooks

Related questions

Q: Macdonald has found that its common equity capital shares have a beta equal to 1.5 while the…

A: Answer: option (a.) 13.32% Solution: Cost of equity under CAPM- Required rate of Return = Rf +βRm-Rf…

Q: a. The after-tax cost of debt using the approximation formula is______%.(Round to two…

A: Here, To Find: Part A. The after-tax cost of debt using the approximation formula =? Part B. WACC…

Q: A firm is financed with a mix of risk-free debt (currently valued at £800,000) and equity (which has…

A: Weighted average cost of capital is the average cost of capital that the firm incur for raising…

Q: A firm is financed 79% by common stock, 6% by preferred stock and 17% by debt. The required return…

A: after tax cost of debt = before tax cost of debt * (1-tax rate)

Q: ANB ltd has common equity of $35.5mn and $31.9mn of long-term debt and $10.3mn of preferred equity…

A: The weighted average cost of capital is the rate at which a corporation is anticipated to compensate…

Q: Tencent Corporation has a target capital structure of 70 percent common stock,5 percent preferred…

A: The WACC reflects the weighted average cost of capital of a company. This can determined by doing…

Q: Suppose that B2B, Inc. has a capital structure of 35 percent equity, 16 percent preferred stock, and…

A: Calculation of WACC:The WACC is 9.59%.Excel Spreadsheet:

Q: AllCity, Inc., is financed 44% with debt, 15% with preferred stock, and 41% with common stock. Its…

A: The Weighted average cost of capital(WACC) refers to the method in which each category of capital is…

Q: what is the WACC?

A: The Weighted Average Cost of Capital (WACC) is used for determining the cost of capital. It…

Q: Rogers’ Rotors has debt with a market value of $250,000, preferred stock with a market value of…

A: WACC (weighted average cost of capital) refers to the average cost that is paid by a company to…

Q: Marginal Incorporated (MI) has determined that its after-tax cost of debt is 5.0% for the first $62…

A: Capital Budget = $167 million To be financed through: Debt = 167*325/500 = 108.55 million Preferred…

Q: Sixx AM Manufacturing has a target debt-equity ratio of 0.7. Its cost of equity is 17 percent, and…

A: WACC = Weight of debt * Cost of debt + Weight of equity * Cost of equity Cost of debt = Cost * ( 1 -…

Q: Williamson, Inc., has a debt-equity ratio of 2. The firm's weighted average cost of capital is 10…

A: Given: Debt to equity = 2 WACC = 10% cost of equity re=21.6% tax = 30%

Q: Fusion Packaging is financed with 55% equity and 45% debt. The required rate of return on its debt…

A: Weight of equity (We) = 55% Weight of debt (Wd) = 45% Cost of debt (Rd) = 4.4% Cost of equity (Re) =…

Q: Mullineaux Corp. has a target capital structure of 41% common stock, 4% 2 poir preferred stock, and…

A: The Weighted average cost of capital(WACC) refers to the method in which each category of capital is…

Q: Petra plc. has a current and target leverage ratio of 0.8, the finance cost from loans is 16 per…

A: Weighted cost of capital: It can be defined as the rate that is paid by the company on the average…

Q: Capital Co. has a capital structure, based on current market values, that consist of 50% debt, 10%…

Q: The ABC corp. is expected to have the earnings before interest and taxes of $60,000 and the…

A: EBIT= $60,000 Unlevered Cost of capital (Vu)= 12% Tax rate= 30% Debt value= $20,000 Annual coupon…

Q: Outlet has an unlevered cost of capital of 14.2 percent, a tax rate of 35 percent, and expected…

A: Value of Unlevered Firm = EBIT*(1-tax rate)/unlevered cost of capital = [23400*(1-35%)]/14.2% =$…

Q: Tomeco Co. has a WACC of 12 percent. Its debt sells at a yield to maturity of 6 percent, and its tax…

A: Equity to total asset ratio is the financial tool to determine the value of asset that the…

Q: A firm is financed with a mix of risk-free debt (currently valued at £800,000) and equity (which has…

A: Let's start with the understanding the meaning of weighted average cost of capital it is a…

Q: The ABC corp. is expected to have the earnings before interest and taxes of $60,000 and the…

A: Value of Unlevered firm (Vu)Vu=EBIT1-TRu where T= Tax rate, Ru=Unlevered cost of capital Value of…

Q: Company A is financed by 20% of debt and the rest of the company is financed by common equity. The…

A: Given: Debt (% of capital structure) 20% Before-tax cost of debt 5% Cost of equity 11%…

Q: The ABC corp. is expected to have the earnings before interest and taxes of $60,000 and the…

A: As per MM proportion 2 value of unlevered firm will increase by present value of tax shield provided…

Q: A firm is financed 73% by common stock, 10% by preferred stock and 18% by debt. The required return…

A: given, ws= 0.73 wp= 0.1 wd= 0.18 rs= 16% rp= 8% rd= 5% tax = 0.21

Q: The firm is financed with debt and equity. The book value of the debt is $10,000,000; the book value…

A: Weighted average cost of capital (WACC) refers to the average cost that is paid by a company to…

Q: Calculate the WACC for a firm that pays 10% on its debt, requires an 18% rate of return on its…

A: The Weighted average cost of capital(WACC) refers to the method in which each category of capital is…

Q: The total book value of WTC's equity is $10 million, and book value per share is $20. The stock has…

A: Market to book ratio = 1.5 Book value of equity = $10 Million --------------------------------------…

Q: What is the WACC for a firm with 40% debt, 20% preferred stock, and 40% equity if the respective…

A: Let Wd = Weight of debt = 40% Wp = Weight of preferred stock = 20% We = Weight of equity = 40% Let…

Q: AllCity, Inc., is financed 37% with debt, 7% with preferred stock, and 56% with common stock. Its…

A: Weighted Average Cost of Capital (WACC) is the overall cost of capital from all the sources of…

Q: Mullineaux Corporation has a target capital structure of 46 percent common stock, 5 percent…

A: Given: Weight of common stock = 46% Preferred stock = 5% Balance of debt = 1-5%-46% = 49% Tax rate =…

Q: A firm is financed 63% by common stock, 10% by preferred stock and 15% by debt. The required return…

A: Weighted Average Cost of Capital (WACC) is the rate at which the company is willing to pay to its…

Q: You were hired as a consultant to ABC Company, whose target capital structure is 35% debt, 15%…

A: The Weighted average cost of capital(WACC) is the average cost of capital, in which each category of…

Q: Clive Limited Company has a cost of debt of 7%, a cost of equity of 11%, and a cost of preferred…

A: WACC is the weighted average cost of capital. It is the overall cost of capital which is used for…

Q: Optimist Company can sell common shares at $30 per share and can obtain debt funding at 8 percent.…

A: There will be a tax saving on interest paid on debt fund therefore the cost of debt will be reduced…

Q: A company finances its operations with 57 percent debt and the rest using equity. The annual yield…

A: Weighted Average cost of capital helps in determining the cost of financing with different capital…

Q: Assume that a firm has a cost of debt capital of 0.06, a company tax rate of 0.2, a market value of…

A: Weight average cost of capital = ∑weight of component*cost of component cost for the debt component…

Q: You have been assigned to calculate the weighted average cost of capital (WACC) of XYZ corporation.…

A: WACC = (Weight of debt * cost of debt) + (Weight of equity * Cost of equity)

Q: what is the WACC?

A: The WACC stands for the weighted average cost of capital (WACC), which is a calculation of a firm's…

Q: Jones Soda estimates that its required return on equity is 11.0 percent and the yield to maturity on…

A: after tax cost of debt = before tax cost of debt * (1-taxrate)

Q: a firm has a debt-to-equity ratio of 1.0. if we assume that the firm's debt pays 11% interest…

A: Hence, cost of debt after tax is 6.6%.The cost of debt is determined by multiplying cost of debt…

Q: Gamma Inc. has a weighted average cost of capital of 18.60%. The firm’s cost of equity is 24.40%,…

A: WACC = 18.60% Cost of Equity = 24.40% Cost of Debt = 15% Tax Rate = 34%

Question

A firm is financed 74% by common stock, 6% by preferred stock and 17% by debt. The

required return is 13% on the common, 11% on the preferred, and 5% on the debt. If the tax rate

is 21% what is the WACC?

Definition Definition Type of stock which is granted priority over dividend distributions as compared to common stockholders. Preferred stocks also do not carry any voting rights. Notably, in a case where a company is going to be liquidated, preferred stockholders have a priority claim on the value of assets of the company as quoted in the balance sheet, as compared to the common stockholders.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Brower Co. is considering the following alternative financing plans: Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that income before bond interest and income tax is 2,000,000.
Albion Inc. provided the following information for its most recent year of operations. The tax rate is 40%. Required: 1. Compute the following: (a) return on sales, (b) return on assets, (c) return on stockholders equity, (d) earnings per share, (e) price-earnings ratio, (f) dividend yield, and (g) dividend payout ratio. 2. CONCEPTUAL CONNECTION If you were considering purchasing stock in Albion, which of the above ratios would be of most interest to you? Explain.
A firm is financed 79% by common stock, 6% by preferred stock and 17% by debt. The required return is 15% on the common, 9% on the preferred, and 4% on the debt. If the tax rate is 21% what is the WACC?
The Bigelow Company has a cost of equity of 12 percent, a pre-tax cost of debt of 7 percent, and a tax rate of 35 percent. What is the firmâ€™s weighted average cost of capital if the proportion of debt is 37.5% and the proportion of equity is 62.5%?
The ABC Company has a cost of equity of 21.2 percent, a pre-tax cost of debt of 5.2 percent, and a tax rate of 30 percent. What is the firm's weighted average cost of capital if the proportion of debt is 65.6%?
The Two Dollar Store has a cost of equity of 12.3 percent, the YTM on the company's bonds is 5.8 percent, and the tax rate is 39 percent. If the company's debt–equity ratio is .58, what is the weighted average cost of capital?
Fama's Llamas has a weighted average cost of capital of 9.7 percent. The company's cost of equity is 12 percent, and its pretax cost of debt is 7.4 percent. The tax rate is 25 percent. What is the company's target debt-equity ratio?
Shaw Communications is currently financed with 30% equity, 10% preferred stock, and 60% debt. It has a cost of equity capital of 11%, a cost of preferred stock of 7.5%, and its pretax cost of debt is 6%. If the firm has a tax rate of 30%, what is Shaw's weighted average cost of capital (WACC) ?
SLG Corp. is an all-equity firm with a weighted average cost of capital of 10.02 percent. The current market value of the equity is $13.4 million and the total tax rate is 22 percent. What is EBIT?
A company finances its operations with 57 percent debt and the rest using equity. The annual yield on the company's debt is 6% and the required rate of return on the stock is 14.6%. What is company's WACC? Assume the tax rate is 30%
Using the WACC in practice: Maloney’s, Inc., has found that its cost of common equity capital is 17 percent and its cost of debt capital is 6 percent. If the firm is financed with $3,000,000 of common shares (market value) and $2,000,000 of debt, then what is the after-tax weighted average cost of capital for Maloney’s if it is subject to a 40 percent marginal tax rate? 8.96% 11.16% 11.64% 12.60%