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Butoxors [25]
3 years ago
13

A firm has a total market value of $10 million while its debt has a market value of $4 million. What is the after-tax weighted a

verage cost of capital if the before-tax cost of debt is 10%, the cost of equity is 15%, and the tax rate is 35%
Business
1 answer:
BartSMP [9]3 years ago
4 0

Answer:

11.6%

Explanation:

A firm total market value is $10 million

Its debt has a market value of $4 million

The before-tax cost of debt is 10%

= 10/100

= 0.1

The cost of equity is 15%

= 15/100

= 0.15

The tax rate is 35%

= 35/100

= 0.35

Therefore, the after-tax weighted average cost of capital can be calculated as follows

WACC= 0.4(0.10)(1-0.35) + 0.6(0.15)

= 0.04(0.65) + 0.09

= 0.026 + 0.09

= 0.116×100

= 11.6%

Hence the after-tax weighted average cost of capital is 11.6%

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3 years ago
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Answer:

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In the current year, a taxpayer reports the following items: Salary $50,000 Income from partnership A, in which the taxpayer mat
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Suppose that you own a video store that has total costs of $3,600 per month. If you charge $12 for each DVD you sell, how many d
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3 years ago
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