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kap26 [50]
3 years ago
8

Calculating Weighted Average Cost of Capital and Economic Value Added (EVA)

Business
1 answer:
kirill115 [55]3 years ago
8 0

Answer:

Mortgage bonds after-tax cost:

= Interest rate * (1 - tax rate)

= 4% * ( 1 - 30%)

= 4% * 70%

= 2.8%

Unsecured bonds after-tax cost:

= 6% * (1 - 30%)

= 6% * 70%

= 4.2%

Common stock:

= Long term treasury rate + risk premium

= 4% + 8%

= 12%

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