Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 9, Problem 14SP
(Capital structure weights) Wingate Metal Products, Inc. sells materials to contractors who construct metal warehouses, storage buildings, and other structures. The firm has estimated its weighted average cost of capital to be 9.0 percent based on the fact that its after-tax cost of debt financing was 7 percent and its
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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 _____.
A construction company has asked its chief financial officer to measure the cost of each specific form of capital as well as its weighted average cost of capital. The weighted average cost is measured using the following weights; 40% long-term debt, 10% preferred stock and 50% common stock equity. The company's tax rate is 40% Debt Company sells $980, a 10 year, $1,000 par value bond that pays a 10% coupon rate annually . Floatation cost is $35 of the per value and the bond is sold at discount of $20 per bond Preferred Stock : 8% preferred stock with par value of $100 is sold at $65 per share . In addition , the company has to pay an underwriting fee of $2 per share. Common stock : The current market value of the common stock is $50 per share . Next year , the dividend (2020 ) is 4 per share dividend payments , which have been approximately 60% of earnings per share in each of the last five years If the company decides to issue a new common equity , then the company must pay the the…
Almond, Inc has determined the cost of each of its sources of capital and the desired weighting in the capital structure. See below. What is its weighted average cost of capital?
Source of capital Weight After‑tax cost
______________________________________________________
Long‑term debt 40% 7%
Preferred stock 10 13
Common stock equity 50 15
And if Almond Inc. pays 11.6% interest on its outstanding bonds. If its tax rate is 40%, what is its after-tax cost of debt?
Chapter 9 Solutions
Foundations Of Finance
Ch. 9 - Define the term cost of capital.Ch. 9 - Prob. 2RQCh. 9 - Why do firms calculate their weighted average cost...Ch. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - Prob. 6RQCh. 9 - Prob. 7RQCh. 9 - Prob. 1SPCh. 9 - Prob. 2SPCh. 9 - (Cost of equity) In the spring of 2018, the Brille...
Ch. 9 - Prob. 4SPCh. 9 - Prob. 5SPCh. 9 - Prob. 6SPCh. 9 - Prob. 7SPCh. 9 - (Cost of internal equity) Pathos Co.s common stock...Ch. 9 - (Cost of equity) The common stock for the Bestsold...Ch. 9 - Prob. 10SPCh. 9 - Prob. 11SPCh. 9 - Prob. 12SPCh. 9 - a. Rework Problem 9-12 as follows: Assume an 8...Ch. 9 - (Capital structure weights) Wingate Metal...Ch. 9 - (Weighted average cost of capital) The capital...Ch. 9 - Prob. 17SPCh. 9 - Prob. 18SPCh. 9 - Prob. 19SPCh. 9 - (Divisional costs of capital and investment...Ch. 9 - Prob. 21SPCh. 9 - Prob. 2.1MCCh. 9 - If you were to evaluate divisional costs of...
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