Answer:
a. 10.14%
Explanation:
WACC = wE*rE + wP*rP + wD*rD(1-tax) whereby;
w= weight of...
r = cost of..
Find the market values;
Common equity(E) = 5,000,000* 8 = 40,000,000
Preferred stock(P) = 10,000,000
Debt (D) = 100,000 *1000 *0.96 = 96,000,000
Total value = 146,000,000
Therefore;
wE= 0.2740
wP = 0.0685
wD = 0.6575
Cost of capital;
rE = 19% or 0.19
rP = 15% or 0.15
rD = 9% or 0.09
WACC = (0.2740*0.19) + (0.0685 * 0.15) + [0.6575*0.09(1-0.34)]
WACC = 0.0521 + 0.0103 + 0.0391
WACC = 0.1015 or about 10.14%
Answer:
Explanation:
Please check the attached file below to see answer to the given question
Answer:
Explanation:
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Answer: 12.6%
Explanation:
From the question, we are told that a consultant firm has been hired by Eco Brothers Inc. to help them estimate the cost of common equity and that the yield on the firm's bonds is 8.75%, while the firm's economists believe that the cost of common can be estimated using a risk premium of 3.85% over a firm's own cost of debt.
The estimate of the firm's cost of common from reinvested earnings will be the addition of the risk free rate and the risk premium. This will be:
= 8.75% + 3.85%
= 12.6%
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