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spin [16.1K]
3 years ago
6

Take It All Away has a cost of equity of 11.08 percent, a pretax cost of debt of 5.38 percent, and a tax rate of 39 percent. The

company's capital structure consists of 68 percent debt on a book value basis, but debt is 34 percent of the company's value on a market value basis What is the company's WACC?
a. 7.91%
b. 12.97%
c. 9.14%
d. 9.75%
e. 8.43%
Business
1 answer:
Kipish [7]3 years ago
4 0

Answer:

8.43 %

Explanation:

Weighted Average Cost of Capital (WAAC) is the Cost of long term permanent sources of finance. We consider WACC on the Market Weight of sources of Finance.

WACC = ke × E/V + kd × D/V

where,

ke = cost of equity

    = 11.08 %

E/V = Market Weight of Equity

      = 100 % - 34 %

      = 0.66

kd = cost of debt

    = interest × ( 1 - tax rate)

    = 5.38 % × (1 - 0.39)

    = 3.2818 %

D/V = Market Weight of Debt

      = 0.34

Therefore,

WACC = 11.08 % × 0.66 + 3.2818 % × 0.34

           = 8.43 %

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4 0
3 years ago
Here is a consumption function: C = C0 + MPC(Yd). If consumption is $2,000, MPC =0.75, and disposable income is $2,000, what doe
Hunter-Best [27]

Answer:

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$2,000 = Co + 0.75 x $2,000

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I hope my answer helps you

8 0
3 years ago
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fredd [130]

Answer:

Explanation:

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PV of annuity of 1475

= 91671.84

Total value

= 59925.55 + 91671.84

= 151597.39

3 0
4 years ago
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