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netineya [11]
3 years ago
15

Assume that Zonk is a potential leveraged buyout candidate. Assume that the buyer intends to put in place a capital structure th

at has 70 percent debt with a pretax borrowing cost of 14 percent and 30 percent common equity. Compute the weighted average cost of capital for Zonk based on the new capital structure.
A. 8.85%.
B. 12.56%.
C. 13.01%.
D. 9.94%.
Business
1 answer:
vekshin13 years ago
4 0

Answer:

A.8.85%

Explanation:

Computation to determine the weighted average cost of capital for Zonk based on the new capital structure.

First step is to calculate the Cost of equity capital using this formula

Cost of equity capital = Risk free rate + (Beta*Market premium)

Let plug in the formula

Cost of equity capital = 2.3% + (1.13*5.3%)

Cost of equity capital=8.28%

Now let determine theWeighted average cost capital

Weighted average cost capital = [.70*.14*(1-.35)]+(.30*.0828)

Weighted average cost capital= [.70*.14*.65]+.02484

Weighted average cost capital=0.0637+.02484

Weighted average cost capital= .0885*100

Weighted average cost capital= 8.85%

Therefore the weighted average cost of capital for Zonk based on the new capital structure is 8.85%

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The correct answer is decrease; increase.

Explanation:

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3 years ago
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Demographic variable

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3 0
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irga5000 [103]

Answer:

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non-cash charges

interest on loan

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Which of the following is a tertiary ratio that drives profitability?
Ilia_Sergeevich [38]

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<h3>What is SG&A Expense/Sales?</h3>

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2 years ago
Teams have better communication than other workers because they get to ______. A. Know each other better b. Attend communication
nadya68 [22]

A. Know each other better

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Team comprises individuals or employees who have complementary skills, knowledge and experience needed to execute a project successfully.

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