1. Jorge Ricard, a fi nancial analyst, is estimating the costs of capital for the Zeale Corporation. In the process of this estimation, Ricard has estimated the before-tax costs of capital for Zeale’s debt and equity as 4 percent and 6 percent, respectively. What are the after-tax costs of debt and equity if Zeale’s marginal tax rate is 1. 20 percent? 2. 45 percent?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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1. Jorge Ricard, a fi nancial analyst, is estimating the costs of capital for the Zeale Corporation. In the process of this estimation, Ricard has estimated the before-tax costs of capital for Zeale’s debt and equity as 4 percent and 6 percent, respectively. What are the after-tax costs of debt and equity if Zeale’s marginal tax rate is 1. 20 percent? 2. 45 percent?   2. ABC, Inc. has one class of preferred stock outstanding, a $3.75 cumulative preferred stock, for which there are 546,024 shares outstanding.15 If the price of this stock is $72, what is the estimate of ABC’s cost of preferred equity?   3. Valence Industries wants to know its cost of equity. Its chief financial officer (CFO)believes the risk-free rate is 5 percent, equity risk premium is 7 percent, and Valence’s equity beta is 1.5. What is Valence’s cost of equity using the CAPM approach?   4. Suppose a company has a current dividend of $ 2 per share, a current price of $ 40 per share, and an expected growth rate of 5 percent. Find the cost of  equity?    
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