Rainforest Corporation has a capital structure of 20% debt, 10% preferred stock, and 70% equity. The firm's cost of equity is 11%, cost of preferred is 9%, and the pre-tax cost of debt is 6%. If the corporate tax rate is 21%, what is the firm's cost of capital? 9.55% 9.80% 9.97% 8.67%

Rainforest Corporation has a capital structure of 20% debt, 10% preferred stock, and 70% equity. The firm's cost of equity is 11%, cost of preferred is 9%, and the pre-tax cost of debt is 6%. If the corporate tax rate is 21%, what is the firm's cost of capital? 9.55% 9.80% 9.97% 8.67%

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter17: Multinational Capital Structure And Cost Of Capital

Section: Chapter Questions

Problem 12QA

See similar textbooks

Related questions

Q: Blue Co. has a debt to equity ratio of 25%. The company is funded by debt and common equity. The…

A: WACC weighted average cost of capital is the weight of equity multiply by cost of equity plus weight…

Q: Calculate the weighted average cost of capital (WACC) of company ABC Inc., if: I. The company’s…

A: In the context of the given question, we are required to compute the weighted average cost of…

Q: The capital structure of Bulldogs Inc. is comprised of 50% ordinary stock, 25% preferred stock, and…

A: Formula: Weighted Average Cost of Capital = (Cost of Ordinary Stock X Weighted of Ordinary Stock) +…

Q: A firm has an net operating profit of P300,000, interest of P35,000, and a tax rate of 25%. The firm…

A: Earnings before interest and taxes: Earnings before interest, depreciation and taxes are the…

Q: Bioplex Corporation has a capital structure of 10% debt, 30% preferred stock, and 60% equity. The…

A: WACC refers to the rate that a firm is expected to pay (on an average) to all its security holders…

Q: Unida Systems has 40 million shares outstanding trading for $10 per share. In addition, Unida has…

A: Equity = Number of shares outstanding * Price per share = 40 million shares * 10 per share = 400…

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: Keziah Textiles, Inc. has a cost of equity of 10.8 percent. The company has an aftertax cost of debt…

A: COST OF EQUITY = 10.80% AFTER TAX COST OF DEBT = 5.10% DEBT TO EQUITY RATIO = 0.80

Q: Fama's Llamas has a weighted average cost of capital of 9.5 percent. The company's cost of equity is…

A: Calculation of Target Debt-Equity Ratio:The target debt-equity ratio is 0.91.Excel Spreadsheet:

Q: Williamson, Inc., has a debt-equity ratio of 3. The firm's weighted average cost of capital is 12…

A: The Weighted Average Cost of Capital WACC is calculated with the help of following formula WACC =…

Q: Blue Ridge Tours has a cost of equity of 14.28 percent and a pre-tax cost of debt of 8.1 percent.…

A: Given: Cost of equity = 14.28% Pre tax cost of debt = 8.1% Debt-equity ratio =0.60 Tax rate = 34%

Q: A firm has an net operating profit of P300,000, interest of P35,000, and a tax rate of 25%. The firm…

A: Net operating profit = P300,000 Before tax cost of debt (Kd) = 0.06 Cost of equity (Ke) = 0.15…

Q: Key Motors has a cost of equity of 14.26 percent and an unlevered cost of capital of 11.34 percent.…

A: levered cost of equity formula: re=ru+DV-D×ru -rd×1-taxwhere,re= levered cost of equityru= unlevered…

Q: The Bigelow Company has a cost of equity of 12 percent, a pre-tax cost of debt of 7 percent, and a…

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

Q: . The money used will be to repurchase shares. Marginal tax rate is 35%. According to m and m…

A: Given Aceline corp is all equity financed with 15% cost of capital and firm value of 10 million.…

Q: Percy's Wholesale Supply has earnings before interest and taxes of €106,000. Both the book and the…

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

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: Take It All Away has a cost of equity of 10.57 percent, a pretax cost of debt of 5.29 percent, and a…

A: A company has several sources from where it can raise funds. It can issue equity shares and the…

Q: ercy Motors has a target capital structure of 40% debt and 60% common equity. The yield to maturity…

A: In this we have to calculate the cost of equity from WACC of company.

Q: Unida Systems has 34 million shares outstanding trading for $8 per share. In addition, Unida has $94…

A: Weighted Average cost of capital Weighted Average overall cost of capital of the firm under which…

Q: P&G has the following capital structure: $2 million in debt, $5 million in preferred stock and…

A: Here, Value of the firm is 'V' Debt is 'D' Preferred stock is 'P' Equity is 'E'

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: The Expanding Capital Corporation has a current capital structure of $15 million in secured bonds…

A: Part (1): Calculation of WACC before the new bond issue: Answer: WACC before the new bond issue is…

Q: Debreu Beverages has an optimal capital structure that is 70% common equity, 20% debt, and 10%…

A: Weighted average cost of capital =(weight of equity*cost of equity) + (weight of debt*after tax cost…

Q: Fama's Llamas has a weighted average cost of capital of 9.7 percent. The company's cost of equity is…

Q: A firm has an net operating profit of P300,000, interest of P35,000, and a tax rate of 25%. The firm…

A: WACC = (Ke*Wk) + (Kd*(1-t)*Wd) Where Ke = Cost of equity Kd = Cost of debt Wk = weight of equity…

Q: nd its common stock is expected to pay a $5 dividend per share next year. The stock’s price is…

A: The capital structure is the structure of the source of the funds from where the capital funds has…

Q: Healthy Snacks, Inc. has a target capital structure of 55 percent common stock, 5 percent preferred…

A: Given that, Cost of equity (Ke) = 14.3% Cost of preferred stock (Kp) = 8.9% Pretax cost of debt (Kd)…

Q: Contractual Engineering Incorporated (GEI) has a capital structure which is based on 40 percent…

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

Q: Weekend Warriors, Inc., has 35% debt and 65% equity in its capital structure. The firm’s estimated…

A: Weighted average cost of capital is the overall cost of capital. It is calculating by multiplying…

Q: HBM, Inc. has the following capital structure: Assets $400,000…

A: a.Calculation of After-tax Cost of Debt:

Q: Coldstream Corp. is comparing two different capital structures. Plan I would result in 10,000 shares…

A: a.Computation of EPS for each of these plans:Hence, the EPS of plan I, plan II, and all equity is…

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: Lamas has a weighted average cost of capital of 8.4 percent. The company's equity is II percent, and…

A: The debt Equity ratio states how much debt the company has in its capital structure. Generally the…

Q: Take It All Away has a cost of equity of 11.05 percent, a pretax cost of debt of 5.40 percent, and a…

Concept explainers

Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.

Question

Rainforest Corporation has a capital structure of 20% debt, 10% preferred stock, and 70% equity. The firm's cost of
equity is 11%, cost of preferred is 9%, and the pre-tax cost of debt is 6%. If the corporate tax rate is 21%, what is the
firm's cost of capital?
9.55%
9.80%
9.97%
8.67%

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 with 2 images

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

Assume Plainfield Manufacturing has debt of $6,500,000 with a cost of capital of 9.5% and equity of $4,500,000 with a cost of capital of 11.5%. What is Tylers weighted average cost of capital?
Mullineaux Corporation has a target capital structure of 46 percent common stock, 5 percent preferred stock, and the balance in debt. Its cost of equity is 15.8 percent, the cost of preferred stock is 8.3 percent, and the aftertax cost of debt is 6.8 percent. What is the WACC given a tax rate of 23 percent?
Ninecent Corporation has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 8 percent, and the pretax cost of debt is 9 percent. The relevant tax rate is 24 percent. What is the company’s WACC? What is the aftertax cost of debt?
Sandhill Co. has a capital structure, based on current market values, that consists of 35 percent debt, 19 percent preferred stock, and 46 percent common stock. If the returns required by investors are 12 percent, 13 percent, and 15 percent for the debt, preferred stock, and common stock, respectively, what is Sandhill’s after-tax WACC? Assume that the firm’s marginal tax rate is 40 percent.
Swirlpool, Inc. has found that its cost of common equity capital is 18 percent, and its cost of debt capital is 8 percent. The firm is financed with 60 percent common shares and 40 percent debt. What is the after-tax weighted average cost of capital for Swirlpool, if it is subject to a 40 percent marginal tax rate?
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?
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%?
Targaryen Corporation has a target capital structure of 70 percent common stock, 5 percent preferred stock, and 25 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 6 percent, and the pretax cost of debt is 7 percent. The relevant tax rate is 24 percent. a. What is the company’s WACC?
Healthy Snacks, Inc. has a target capital structure of 55 percent common stock, 5 percent preferred stock, and 40 percent debt. Its cost of equity is 14.3 percent, the cost of preferred stock is 8.9 percent, and the pretax cost of debt is 8.1 percent. What is the company's WACC if the applicable tax rate is 35 percent?
The target capital structure for QM Industries is 40 percent common stock, 10 percent preferred stock, and 50 percent debt. If the cost of common equity for the firm is 18 percent, the cost of preferred stock is 10 percent, the before-tax cost of debt is 8 percent, and the firm’s tax rate is 35 percent, what is QM’s weighted average cost of capital?
Blue Ridge Tours has a cost of equity of 14.28 percent and a pre-tax cost of debt of 8.1 percent. The debt-equity ratio is 0.60 and the tax rate is 34 percent. What is the firm's unlevered cost of capital? A) 9.8 percent B) 12.21 percent C) 12.53 percent D) 13.07 percent
Healthy Snacks, Inc. has a target capital structure of 55 percent common stock, 5 percent preferred stock, and 40 percent debt. Its cost of equity is 14.3 percent, the cost of preferred stock is 8.9 percent, and the pretax cost of debt is 8.1 percent. What is the company's WACC if the applicable tax rate is 35 percent? Answer: ?