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Nikolay [14]
3 years ago
9

"A firm finances itself with 30 percent debt, 60 percent common equity, and 10 percent preferred stock. The before-tax cost of d

ebt is 5 percent, the firm's cost of common equity is 15 percent, and that of preferred stock is 10 percent. The marginal tax rate is 30 percent. What is the firm's weighted average cost of capital
Business
1 answer:
Nutka1998 [239]3 years ago
7 0

Answer:

WACC = Ke(E/V) + Kd(D/V)(1-T)  + Kp(P/V)

WACC = 15(60/100) + 5(30/100)(1-0.3) + 10(10/100)

WACC = 9 + 1.05 + 1

WACC = 11.05%

Explanation:

Weighted average cost of capital is a function of cost of common stock and the proportion of common stock in the capital structure plus after-tax cost of debt and proportion of debt in the capital structure plus cost of preferred stock and the proportion of preferred stock in the capital structure.  Ke = Cost of equity or common stock, kd = cost of debt and kp = cost of preferred stock.

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As a private limited firm dealing with garment manufacturing, you have little cash in hand but considerable business potential.
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2 years ago
The activity known as ________________ encompasses all the tools, techniques, and resources that are needed to collect, interpre
Jlenok [28]

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3 years ago
Your opinion is that CSCO has an expected rate of return of 0.15. It has a beta of 1.3. The risk-free rate is 0.04 and the marke
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