13. Using Weighted Average Cost of Capital (WACC) ignoring taxes compute the cost of capital of a company withdebt ratio of 0.75:1 and is paying yearly average interest for its loans of 4% and dividend rate of 5% yearly.a) 4.00%b) 4.25%c) 4.5%d) 5.00%14. Using capital Asset Pricing Method (CAPM) compute for the cost of capital (equity) with risk free rate of 5%,market return of 12% and Beta of 1.3.a) 14.01%b) 14.10%c) 14.00%d) 14.11%15. Using capital Asset Pricing Method (CAPM) compute for the cost of capital (equity) with risk free rate of 4%,market return of 8% and Beta of 1.5.a) 10.00%b) 11.00%c) 12.00%d) 13.00%

Answer 13) Calculation of Cost of Capital Cost of Capital = (Average Interest on Loans X proportion…

Answered: 13. Using Weighted Average Cost of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Given the information below. Find the Weighted Average Cost of Capital Market Value of Equity = $22,000,000; Debt = $15,000,000; Cash or Cash Equivalents = $15,000,000 iD = 0.10 or 10% iMKT = 0.17 or 17% tCorp = 0.30 or 30% bK = 1.5 IRF = 0.02 = 2%
Given the following calculate the Cost of Equity. Beta Equity Risk Premium Pre-tax Yield on Debt Return on the Bond Market Return on the Stock Market Risk Free Rate Tax Weight of Debt in the Total Capital Structure Weight of Equity in the Total Capital Structure 1.5 5.5% 6.0% 4.5% 8.0% 2.5% 25.0% 25.0% 75.0%
Evans Technology has the following capital structure. Debt Common equity 35% 65 The aftertax cost of debt is 7.50 percent, and the cost of common equity (in the form of retained earnings) is 14.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Common equity Weighted average cost of capital Weighted Cost % % An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 16.50 percent. Debt Common equity Weighted average cost of capital b. Recalculate the firm's weighted average cost of capital. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal…
Company X has a cost of equity of 16.31% and a pretax cost of debt of 7.8%. The debt-equity ratio is 0.56 and the tax rate is 21%. What is the unlevered cost of capital? A )14.01% b) 13.85% c) 13.70% D) 14.08% E)14.26%
Using the data from question 2, please answer question 3.
What is the company's cost of debt? a. 9.21%b. 10.31%c. 11.5%d. 7.73% What is the company's cost of equity using the Capital Asset Pricing Model? a. 9.21%b. 10.31%c. 11.5%d. 7.73%
Calculate the Weighted Average Cost of Capital (WACC) Cost of Equity = 11.02% Cost of Debt = 5.35% Debt-to-Equity Ratio = 15.52%
A firm has two components in its capital structure, debt and equity. The after-tax cost of debt is 3% and the cost of equity is 11%. The proportion of equity in the capital structure is 75%. What is the firm's Weighted Average Cost of Capital? Select one: a. 9.47% b. 8.78% c. 9.00% d. 8.37%
The calculation of WACC involves calculating the weighted average of the required rates of return on debt, preferred stock, and common equity, where the weights equal the percentage of each type of financing in the firm’s overall capital structure. Q1. ________is the symbol that represents the cost of preferred stock in the weighted average cost of capital (WACC) equation. Q2. Avery Co. has $3.9 million of debt, $2 million of preferred stock, and $2.2 million of common equity. What would be its weight on debt? a. 0.27 b. 0.25 c. 0.48 d. 0.20 Q1. Option 1 rS or Option 2 rD or Option 3 rP or Option 4 rE Please provide the correct answers. Thank you!
Which statement is correct?a. The cost of debt is determined by taking the present value of the interest payments and principal times one minus the tax rate.b. The difference in computing the cost of capital between using the accumulated profits and issuance of new ordinary shares is the growth rate.c. Increase in flotation costs, increase in the company’s beta and increase in the expected inflation will all lead to d. increase the company’s weighted average cost of capital.e. Increasing the company’s dividend payout would mitigate the company’s need to raise new ordinary shares.f. none of the above
4. Rivoli Inc. hired you as a consultant to help estimate its cost of capital. You have been provided with the following data: D0 = $0.80; P 0 = $25.00; and g = 8.00% ( constant). Based on the DCF approach, what is the cost of equity from retained earnings? Do not round your intermediate calculations. a . 9.85% b. 14.32% c. 11.46% d . 9.74% e. 13.17%

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