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 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%?

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 1eM

See similar textbooks

Related questions

Q: Assume a company has 10 million of total assets: the market value of equity is 8 million and market…

A: The Weighted Average Cost of Capital(WACC) refers to the financial ratio that provides the overall…

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 has total assets of $1 million and a debt ratio of 30%. Currently, it has sales of $2.5…

A: Working note:

Q: Phil's Carvings, Inc. wants to have a weighted average cost of capital of 9%. The firm has an…

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

Q: Walther enterprises has a capital structure target of 60 percent common equity, 15 percent preferred…

A: Weight of common equity (We) = 60% Weight of preferred stock (Wp) = 15% Weight of long term debt…

Q: Majan Mining has found that its cost of common equity capital is 15 percent and its cost of debt…

A: Cost of Equity Capital = 15% Cost of Debt = 12% Tax Rate = 35% After tax cost of debt = Cost of Debt…

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: Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as…

A: (Note: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the…

Q: Salalah Mineral water has found that its cost of common equity capital is 18 percent, and its cost…

A: re=18%rd=8%we=60%wd=40%tax= 40%

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: Suppose that your firm has a cost of equity of 10%, cost of preferred stock of 8%, and an after-tax…

A: Weighted average cost of capital(WACC) is an average cost of capital which can be calculated by…

Q: Bulldogs Inc., which is funded by debt and ordinary equity, has a debt to equity ratio of 100%. The…

A: Answer) Calculation of Applicable Tax Rate Weighted Average Cost of Capital = [(Weightage of Equity…

Q: Swirlpool, Inc. has found that its cost of common equity capital is 18 percent, and its cost of debt…

A: Given, Cost of equity = 18% Cost of debt = 8% After tax cost of debt = 8% * (1-tax rate) After tax…

Q: Nike, Inc., has a debt-equity ratio of 2.3. The firm's weighted average cost of capital is 10…

A: Debt to equity ratio is 2.3, therefore, debt to total value (D/V) = 2.3/(1+2.3) = 0.696969696969697.…

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: It is known that a firm’s Net Operating Profit After Tax (NOPAT) is $58,000 and its Economic Value…

A: We need to use EVA equation below to calculate WACC EVA =Net Operating Profit After Tax (NOPAT)…

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: CoffeeCarts has a cost of equity of 15%, has a pre-tax cost of debt of 4%, and is financed 70% with…

A: Given details are : Cost of Equity (Ke) = 15% Pre tax cost of debt (Kd) = 4% Weight of Equity = 70%…

Q: Majan Mining has found that its cost of common equity capital is 15 percent and its cost of debt…

A: Introduction The Weighted Average Cost of Capital (WACC) of a company is the total cost of capital,…

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: 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: Sandhill Co. has a capital structure, based on current market values, that consists of 35 percent…

A: Weight Average Cost Of capital The weighted normal expense of capital (WACC) is a computation…

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: KN Stitches has debt of $26,000, a leveraged value of $78,400, a pretax cost of debt of 7.05…

A: WACC formula: WACC=WE×KE+WD×KD×1-TAXWHERE,WE=WEIGHT OF EQUITYWD=WEIGHT OF DEBTKE=COST OF…

Q: Majan Mining has found that its cost of common equity capital is 15 percent and its cost of debt…

A: The cost of capital is the cost that is incurred by a corporation on the acquisition of capital from…

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: Mullineaux Corporation has a target capital structure of 41 percent common stock, 4 percent…

A: given, we=415wp=4%wd=55%re=19%rp=6.5%rd=7.5%tax= 34%

Q: Salalah Mineral water has found that its cost of common equity capital is 18 percent, and its cost…

A: WACC = ∑Wi*KI W is weight and K is cost of component Post tax cost of debt is used for after tax…

Q: Using the WACC in practice: Maloney’s, Inc., has found that its cost of common equity capital is 17…

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

Q: Suppose the weighted average cost of capital of the Oriole Company is 10 percent. If Oriole has a…

A: WACC = 10% Debt ratio (D) = 50% Equity ratio (E) = 50% Before tax cost of debt (Rd) = 7% Tax rate…

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: 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: 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: Marina Supplies has 40% debt and 60% equity in its capital structure. The firm's estimated after-tax…

A: Weighted Average Cost of Capital is the propionate cost of capital of equity and debt. The…

Q: Cullumber Co. has a capital structure, based on current market values, that consists of 40 percent…

A: Given information: Weights : Debt: 40% Preferred stock : 19% Common stock : 41% Cost : Debt : 9%…

Q: rage cost of capital. The weighted average cost is to be measured by using the following weights:…

A: Cost of debt is yield to maturity of the stock and after tax cost can be reduced for tax purpose.

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%

Q: Mullineaux Corporation has a target capital structure of 65 percent common stock and 35 percent…

A: WACC = Weight of equity * Cost of equity + Weight of debt * cost of debt * (1-tax rate)

Question

Definition Definition Amount of return a company generally pays to its equity investors. The cost of equity represents the compensation required by the market in lieu of owning the asset firm and simultaneously bearing the risk of ownership.

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 1 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 Skyler Industries has debt of $4,500,000 with a cost of capital of 7.5% and equity of $5,500,000 with a cost of capital of 10.5%. What is Skylers weighted average cost of capital?
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.
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?
Keziah Textiles, Inc. has a cost of equity of 10.8 percent. The company has an aftertax cost of debt of 5.1 percent, and the tax rate is 35 percent. If the company's debt–equity ratio is .80, what is the weighted average cost of capital?
Company A is financed by 20% of debt and the rest of the company is financed by common equity. The company’s before-tax cost of debt is 5%, and its cost of equity is 11%. If the marginal tax rate is 30%, the company’s weighted average cost of capital (WACC) is _____.
KN Stitches has debt of $26,000, a leveraged value of $78,400, a pretax cost of debt of 7.05 percent, a cost of equity of 15.3 percent, and a tax rate of 21 percent. What is the weighted average cost of capital?
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?
Kountry Kitchen has a cost of equity of 12.7 percent, a pretax cost of debt of 5.6 percent, and the tax rate is 21 percent. If the company's WACC is 9.22 percent, what is its debt-equity ratio?
P&G has the following capital structure: $2 million in debt, $5 million in preferred stock and $7 million in equity. If the company’s before-tax cost of debt is 6%, cost of preferred stock is 9% and cost of equity is 15%, what is weighted average cost of capital (in %) for P&G? Assume that P&G’s tax rate is 30%. WACC = ____________%