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son4ous [18]
3 years ago
15

Blammo, Inc. has a target capital structure of 30% debt and 70% equity. The firm is planning to invest in a project that will ne

cessitate raising new capital. New debt will be issued at a before-tax yield of 14%, with a coupon rate of 10%. The equity will be provided by internally generated funds so no new outside equity will be issued. If the required rate of return on the firm's stock is 22% and its marginal tax rate is 35%, compute the firm's cost of capital.A) 18.00%B) 18.13%C) 19.68%D) 15.55%
Business
1 answer:
Strike441 [17]3 years ago
3 0

Answer:

option (B) 18.13%

Explanation:

Given:

Cost of debt = 30%

Cost of equity = 70%

New debt will be issued at a before-tax yield = 14%

coupon rate = 10%

Required rate of return on the firm's stock = 22%

marginal tax rate = 35%

Now,

the firm's cost of capital is calculated as :

= ( Cost of Debt × (1-Tax Rate) × Weight of Debt ) + ( Cost of Equity × Required rate of return on stocks ) × 100%

on substituting the respective values, we get

= 30% × (1-0.35) × 14%  + ( 70% × 22% )

or

= ( 0.3 × 0.65 × 0.14 + 0.7 × 0.22 ) × 100%

or

the firm's cost of capital = 18.13%

hence, the correct answer is option (B) 18.13%

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5. Elmofud, Inc. is considering splitting its stock. The stock is currently priced at $90 per share. You own 100 shares of the s
UkoKoshka [18]

Answer:

total value be in the stock $9,000

Explanation:

given data

currently priced = $90 per share

Number of Stocks = 100 share

solution

we get here first Value of Position that is express as

Value of Position = $90  × 100

Value of Position = $9,000

and

After stock split

Number of Stocks will be

Number of Stock  = 100 × 3 = 300

and

Price per Share will be

Price per Share = \frac{90}{3}  

Price per Share = $30

so

Value of Position = 30 × 300

Value of Position = $9,000

8 0
3 years ago
Giving away 100 for fun
Serggg [28]

Answer:

Explanation:

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7 0
3 years ago
Read 2 more answers
Choose the best answer:
Juli2301 [7.4K]

Answer:

Option B is correct.

Explanation:

Option A is incorrect because the expected return must be greater than the marginal cost of the capital which means that the Net Present Value must be positive.

Option B is correct because the increase in cost of debt or capital would increase the weighted average cost of capital. This is because weighted average cost of capital is directly proportional to cost of capital sources.

Option C is incorrect because its not the cost of one of the capital sources, actually it is the weighted average cost of capital which when starts increasing at a point due to increase in the level of financing is known as breaking point.

So the only statement that is correct is option B.

Kindly don't forget to rate the answer. Thanks

3 0
3 years ago
Hisaoki picks up the local newspaper and reads a stinging letter to the editor criticizing his beverage company for supporting a
kiruha [24]

Answer: A. Identify issues.

Explanation: Hisaoki's company failed to identify issues, because they never considered problem might arise but it did arises.

In identifying issues one must be clear what the problem is and plan on how to solve them, analyzing the problem is important when identifying issues. This help you to be about the situation when there is problem.

3 0
3 years ago
A study of labor force participation rates of women in the post-World War II period noted:
Andru [333]

The correct answer is C) labor-saving advances in households.

A study of labor force participation rates of women in the post-World War II period noted:

Over the long run, women have joined the paid labor force because of a series of changes affecting the nature of work. Primary among these was labor-saving advances in households.

This is an important factor because new inventions and technology have allowed women to leave the house in order to have an education an enter the job force in the corporate world because they have shown the be very capable to perform jobs in industries and companies, at the highest levels. Today, many families need a double income in the house in order to make a decent living. So it is common to see the father and the mother having a job.

6 0
3 years ago
Read 2 more answers
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