Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133507690
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Textbook Question
Chapter 9, Problem 9.5WUE
Oxy Corporation uses debt,
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Students have asked these similar questions
Oxy Corporation uses debt, preferred stock, and common stock to raise capital. The firm's capital structure targets the following proportions: debt,
49%; preferred stock, 10%; and common stock, 41%.
If the cost of debt is 7.3%, preferred stock costs 7.6%, and common stock costs 10.9%, what is Oxy's weighted average cost of capital
(WACC)?
\
Oxy's weighted average cost of capital (WACC) is
___________%.
(Round to two decimal places.)
Oxy Corporation uses debt, preferred stock, and common stock to raise capital. The firm's capital structure targets the following proportions: debt,
53%;
preferred stock,
11%;
and common stock,
36%.
If the cost of debt is
5.5%,
preferred stock costs
7.6%,
and common stock costs
11.9%,
what is Oxy's weighted average cost of capital
(WACC)?
The calculation of WACC involves calculating the weighted average of the required rates of return on debt, preferred stock, and common equity, where the weights equal the percentage of each type of financing in the firm’s overall capital structure.
(rs, rd, rp, re) is the symbol that represents the cost of raising capital by issuing new stock in the weighted average cost of capital (WACC) equation.
Avery Co. has $2.7 million of debt, $1.5 million of preferred stock, and $2.2 million of common equity. What would be its weight on preferred stock?
0.23
0.21
0.42
0.18
Chapter 9 Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Ch. 9.1 - Prob. 1FOECh. 9.1 - What is the cost of capital?Ch. 9.1 - Prob. 9.2RQCh. 9.1 - Prob. 9.3RQCh. 9.1 - What are the typical sources of long-term capital...Ch. 9.2 - Prob. 9.5RQCh. 9.2 - Prob. 9.6RQCh. 9.2 - Prob. 9.7RQCh. 9.3 - How would you calculate the cost of preferred...Ch. 9.4 - What premise about share value underlies the...
Ch. 9.4 - How do the constant-growth valuation model and...Ch. 9.4 - Why is the cost of financing a project with...Ch. 9.5 - Prob. 1FOPCh. 9.5 - Prob. 9.13RQCh. 9.5 - Prob. 9.14RQCh. 9.5 - Prob. 9.15RQCh. 9 - Prob. 1ORCh. 9 - Learning Goals 3, 4, 5, 6 ST9-1 Individual...Ch. 9 - Prob. 9.1WUECh. 9 - Prob. 9.2WUECh. 9 - Prob. 9.3WUECh. 9 - Weekend Warriors Inc. has 35% debt and 65% equity...Ch. 9 - Oxy Corporation uses debt, preferred stock, and...Ch. 9 - Prob. 9.1PCh. 9 - Prob. 9.2PCh. 9 - Prob. 9.3PCh. 9 - Prob. 9.4PCh. 9 - The cost of debt Gronseth Drywall Systems Inc. is...Ch. 9 - After-tax cost of debt Bella Wans is interested in...Ch. 9 - Prob. 9.7PCh. 9 - Cost of preferred stock Determine the cost for...Ch. 9 - Prob. 9.9PCh. 9 - Prob. 9.10PCh. 9 - Retained earnings versus new common stock Using...Ch. 9 - The effect of tax rate on WACC K. Bell Jewelers...Ch. 9 - WACC: Market value weights The market values and...Ch. 9 - WACC: Book weights and market weights Webster...Ch. 9 - Prob. 9.15PCh. 9 - Cost of capital Edna Recording Studios Inc....Ch. 9 - Prob. 9.17PCh. 9 - Prob. 9.18PCh. 9 - Calculation of individual costs and WACC Lang...Ch. 9 - Weighted average cost of capital (WACC) American...Ch. 9 - Prob. 9.21PCh. 9 - Eco Plastics Company Since its inception, Eco...
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- The calculation of WACC involves calculating the weighted average of the required rates of return on debt, preferred stock, and common equity, where the weights equal the percentage of each type of financing in the firm’s overall capital structure. is the symbol that represents the before-tax cost of debt in the weighted average cost of capital (WACC) equation. Wyle Co. has $1.4 million of debt, $2.5 million of preferred stock, and $3.3 million of common equity. What would be its weight on debt? 0.28 0.32 0.19 0.46arrow_forwardOxy Corporation uses debt, preferred stock, and common stock to raise capital. The firm's capital structure targets the following proportions: debt, 58% ;preferred stock, 16% and common stock, 26%. If the cost of debt is 6.6% preferred stock costs 7.9% and common stock costs 10.3%, what is Oxy's weighted average cost of capital (WACC)?arrow_forwardYou are given the market values of CHAR’s capital structure as follow: $52 million in total common equity, $20 million in debt, and $8 million in preferred stock. CHAR’s tax rate is 40%. After-tax cost of debt is 7%, cost of preferred stock is 5.5%, and cost of common equity is 15%. If CHAR’s book value capital structure weights are 60% common equity, 25% debt, and 15% preferred stock, what is CHAR’s WACC?arrow_forward
- You are given the market values of CHAR's capital structure as follow: $52 million in total common equity, $20 million in debt, and $8 million in preferred stock. CHAR's tax rate is 40%. After-tax cost of debt is 7%, cost of preferred stock is 5.5%, and cost of common equity is 15%. If CHAR's book value capital structure weights are 60% common equity, 25% debt, and 15% preferred stock, what is CHAR's WACC? Show steps by steps in detail.arrow_forwardOxy Corporation uses debt, preferred stock, and common stock to raise capital. The firm's capital structure targets the follwoing proportions: debt, 43%; preferred stock, 11%; and common stock, 46%. If the cost of debt is 6.4%, preferred stock costs 9.5%, and common stock cost 11.7%, what is Oxy's weighted average cost of capital (WACC)?arrow_forwardCompany E has 4 million shares of stock outstanding, 1 million shares of preferred stock, and 20,000 bonds. If the common shares sell for $28 per share, the preferred shares sell for $18.50 per share, and the bonds are selling for 97% of par, what would be the weights used in the calculation of Company E’s Weighted Average Cost of Capital (WACC)?arrow_forward
- 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?arrow_forwardShweDay C. has a total long term capital of $850,000; of which 25% is long-term debt, $100,000 is preferred stock, and the rest is common equity. Its after-tax cost of debt is 5.5 percent, the cost of preferred stock is 6.5 percent, and the cost of common equity is 13 percent. What is ShweDay’s WACC? (Answer in word form please)arrow_forward
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