1.4) A firm's stockholders expect a 15% rate of return, and there is $12M in common stock and retained earnings. The firm has $5M in loans at an average rate of 7%. The firm has raised $SM by selling bonds at an average rate of 6%. What is the firm's cost of capital after tax with a tax rate of 35%? a. 9.4% b. 9.8% c. 6.8% d. 10.5%

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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1.4) A firm's stockholders expect a 15% rate of return, and there is $12M in common
stock and retained earnings. The firm has $5M in loans at an average rate of 7%. The
firm has raised $SM by selling bonds at an average rate of 6%. What is the firm's cost
of capital after tax with a tax rate of 35%?
a. 9.4%
b. 9.8%
c. 6.8%
d. 10.5%
Transcribed Image Text:1.4) A firm's stockholders expect a 15% rate of return, and there is $12M in common stock and retained earnings. The firm has $5M in loans at an average rate of 7%. The firm has raised $SM by selling bonds at an average rate of 6%. What is the firm's cost of capital after tax with a tax rate of 35%? a. 9.4% b. 9.8% c. 6.8% d. 10.5%
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