A firm is financed with a mix of risk-free debt (currently valued at £800,000) and equity (which has a current market value of £1,200,000). The risk-free rate is 8%, the firm’s cost of equity capital is 14%. What is the firm’s weighted average cost of capital (to the nearest 0.01%) (i) with no taxation and (ii) if the firm’s marginal tax rate is 40% and debt interest payments are tax deductible.? a.(i) 11.60% and (ii) 10.32% b. (i) 10.40% and (ii) 8.48% c. (i) 11.60% and (ii) 8.48% d. None of the above. e. (i) 10.40% and (ii) 10.32%

A firm is financed with a mix of risk-free debt (currently valued at £800,000) and equity (which has a current market value of £1,200,000). The risk-free rate is 8%, the firm’s cost of equity capital is 14%. What is the firm’s weighted average cost of capital (to the nearest 0.01%) (i) with no taxation and (ii) if the firm’s marginal tax rate is 40% and debt interest payments are tax deductible.? a.(i) 11.60% and (ii) 10.32% b. (i) 10.40% and (ii) 8.48% c. (i) 11.60% and (ii) 8.48% d. None of the above. e. (i) 10.40% and (ii) 10.32%

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 1P

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