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%

Question

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%

 
 

Expert Answer

Want to see the step-by-step answer?

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times may vary by subject and question complexity. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers.
Tagged in
Business
Finance

Capital Budgeting

Related Finance Q&A

Find answers to questions asked by students like you.

Q: Describe the Cost flows and their classifications in a manufacturing company?

A: Cash flows are the cash generated from the operation of the business organisation. In other words, t...

Q: ABC Ltd Statement of Financial Position                                                           ...

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any ...

Q: Calculate the trade discount amount of goods with a list price of $29,000 less trade discounts of 40...

A: We will calculate the discount for each discount given in the problem. 1) first discount with discou...

Q: Which are the four major types of corporate bonds?

A: Types of Corporate bonds 1. Senior bonds Senior bonds give investors the first claim to a company’s...

Q: Explain the factors that affect the cost of a loan: a. Prime rate. b. Fixed-rate loan. c. Variable-r...

A: a. Prime Rate Rate of interest which is charged by the bank to their most trustworthy customers is k...

Q: How would you define profit planning? What is the importance of profit planning?

A: a) Profit planning is a progression of steps being taken to arrive at an ideal level of profit. Such...

Q: An investment portfolio has equal proportions invested in five stocks.The expected returns and stand...

A: Investment portfolio : No. of stocks : 5 Weights : equal or 100%/5 = 20% or 0.2 for each stock  S...

Q: You are the payroll manager for Euro Couture, a manufacturer of women's apparel. Your workers are pa...

A: Calculation of the gross pay for the following employee is shown as follows: Hence, the gross pay t...

Q: Pace University has bonds on the market making annual payments, with eight years to maturity, a par ...

A: Calculation of coupon rate on bonds: Answer: Coupon rate is 5.07%

Q: 8. The company purchased equipment and agreed to make payments of $5,400 at the end of each year for...

A: Present value is the current amount which is expected to be received or incurred by investors over t...

Q: What is going interest rate?

A: An interest rate is the rate which is applicable on loan and the borrower has to pay the interest am...

Q: Loreto Inc. has the following financial ratios: asset turnover = 2.00; net profit margin (i.e., net ...

A: Part (a) Calculation of sustainable growth rate: Answer: Sustainable growth rate is 17.33%

Q: Pakhama Enterprises wants to extent its credit terms in order to increase the sales to grow the busi...

A: The question is based on the concept of overtrading , which is a common phenomenon for quick expansi...

Q: How can we determine the borrowing rate of return?

A: The borrowing rate of return is the return that is charged on the borrowings made by the firms or in...

Q: What are the three areas of the cash flow elements?

A: Financial Statements comprise of the Balance sheet, Income statement, Cash Flow Statement, Statement...

Q: What is the current share valueof Rising Bank's stock to an investor who has a required rate of retu...

A: I will help you with he first question here, please submit remaining two question separately. The qu...

Q: Consider a T-bond maturing in March 2020 with coupon payments on September 1st and March 1st. Assume...

A: Given data, coupon payments are semiannually. par value = $ 1000 coupon rate = 10% YTM = 12.5% numbe...

Q: Please provide examples of the cash inflows and outflows that may be considered when considering a c...

A: The capital project is the project that helps in the improvement of various capital assets. It is th...

Q: I figured out everything except C. Please help me with C.   Hewlard Pocket’s market value balance sh...

A: Part (c): Calculation of total value of stock held by new investors: Answer: Total value of stock he...

Q: Complete the following: (Do not round intermediate calculations. Round your final answers to the nea...

A: The terms 4/10, n/60 here means that the seller will give 4 % cash discount to the buyer if they pay...

Q: Today is your birthday and you decide to start saving for your retirement. You will retire on your 6...

A: Calculate the present value of amount required after retirement at the age of retirement as shown be...

Q: Big Sean is buying a new truck from Willie’s Auto Sales, the dealer is providing the financing and h...

A: Calculation of monthly payment: Answer: Monthly payment is $995.40

Q: What are two additional types of costs incurred to support any manufacturing project?

A: The manufacturing companies are the companies which deal in the production or change in the raw good...

Q: The billing cycle for Mr. Lang’s credit card begins on September 8 and ends on October 7. He is carr...

A: Average daily balance is calculated to determine the finance charge on the billing period of a credi...

Q: Mr. Henry is purchasing an apartment that cost RM 475,000. The bank is offering 90% loan on the prop...

A: Click to see the answer

Q: A asset is one which can be quickly converted into cash without significant loss in value.

A: An asset is a resource which is owned by the company in order to operate the functions and activitie...

Q: When is the financial risk by far the most critical element to consider?

A: Financial risk is one type of risk wherein the risk of the debt component in the company is being ca...

Q: Who is responsible for the generation and evaluation of creative investment proposals in an organiza...

A: Investment manager or finance manager is responsible for the organization’s creative investment prop...

Q: a store can stock a maximumof 210 of tires, hubs and car seats. they know from past experience that ...

A: As indicated in question , We can have maximum stock of 210 combining of tires, hubs and car seats. ...

Q: T\vo banks offer the following interest rates on your deposit:• Bank A : 9% interest compounded cont...

A: Statement A is not true and all other statements are true.

Q: You are supposed to receive OMR3,000 four years from now. At an interest rate of 8%, what is that OM...

A: The calculation is: Values in OMR.

Q: For many years, college cost (including tuition, fees, room, and board) increases have been higher t...

A: The computation as follows: a) Hence, the total costs to be $23947.14.

Q: What is the process of consideration of the payback period?

A: Payback period It computes the required time to recover back the project’s investment by way of futu...

Q: David Kapamagian borrowed money from a bank to finance a small fishingboat. The bank's loan terms al...

A: Working of the rate charged by the company is shown as follows:

Q: What are the six steps taken to determine the Net-Present-Worth Criterion?

A: The Net-Present-Worth (NPW) criterion is used in capital budgeting to measure the worth of investmen...

Q: Manually calculate the compound amount and compound interest for the following investment. Round you...

A: Formulas: Amount = Principal *(1+rate)^years Amount = $4,000 * (1+6%)^2 Amount = $4,000 *1.1236 Amou...

Q: Describe the procedure used for Incremental Analysis for Comparing Mutually Exclusive Alternatives?

A: Mutually exclusive alternatives are those alternatives in which only one alternative can be selected...

Q: The ROE of the Midwest Corporation last year was only 3%. [Note: This information is irrelevant in t...

A: The return on equity is the percentage earned on the equity investment made by the company. It shows...

Q: Examine the processes for the acquisition of licence by Banks and other financial institutions in Gh...

A: Answer: A financial institution is nothing but the corporation or the corporate organization whose m...

Q: If the TPL did agree to fund all costs except the $3 million bond proceeds now available, determine ...

A: Given: The fund costs is $3 million bond The extra interest is 7%

Q: State the processes for the acquisition of licence by Banks and other financial institutions in Ghan...

A: Answer: A financial institution is nothing but the corporation or the corporate organization whose m...

Q: Define the term return on invested capital (RIC)?

A: All investments are made keeping focus on the expected returns that can be generated from it. The re...

Q: Compute the NPV for Project M if the appropriate cost of capital is 8 percent. (Do not round interme...

A: The net present value is the difference of the present value of cash inflows and the present value o...

Q: A&M Corporation purchased a vibratory finishing machine for $20,000 in year 0. The machine's use...

A: Option B is the correct answer. It will take 4 years to complete the cost incurred on the vibratory ...

Q: How can we use the PW criterion to compare the alternatives to minimize expenditures?

A: The full form of PW is present worth. Present worth is known as the present value of the investment ...

Q: Cash Equation Blitz Corp. has a book value of equity of $17,010. Long-term debt is $8,400. Net worki...

A: Total assets = Liabilities + Equity Fixed assets + Net working capital other than cash + Cash =  lon...

Q: Describe the Incremental Analysis for Cost-Only Projects?

A: The incremental cost is the additional cost incurred for producing an additional one unit of a produ...

Q: Please explain the terms associated with the bonds, namely, corporate bond, municipal bond , treasur...

A: Corporate Bonds: These are the bonds which are issued by company’s in order to fund for any new proj...

Q: What are the different terms used to refer to the rate of return?

A: Rate of return is an expected profit on an investment by a investor. It is a rate at which investor ...

Q: Define the term the effective interest rate covering the payment period?

A: Interest rates can be of two types- Simple interest rate- This is the interest rate stated in the i...