42 A company has P1 million in shareholders' equity and P2 million in debt equity (8% bonds). Its after-tax weighted-average cost of capital is 12%, but it uses 15% as the hurdle rate in capital budgeting decisions. During the past year, its operating income before tax and interest was P500,000. Its tax rate is 40%. What is the company's cost of equity capital? Group of answer choices 26.4% 8% 15% 12%

42 A company has P1 million in shareholders' equity and P2 million in debt equity (8% bonds). Its after-tax weighted-average cost of capital is 12%, but it uses 15% as the hurdle rate in capital budgeting decisions. During the past year, its operating income before tax and interest was P500,000. Its tax rate is 40%. What is the company's cost of equity capital? Group of answer choices 26.4% 8% 15% 12%

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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QUESTION 42 company s estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free rate (RF) is 5% and the market risk premium (M-[RF) is 6%. Currently the company's cost of equity, which is based on the CAPM, is 14% and its tax rate is 20%. Find the firm's current leveraged beta using the CAPM O 1.0 O 1.5 O 1.6 O 1.7 QUESTION 43 Based on the information from Question 42, find the firm's unleveraged beta using the Hamada Equation O 0.95 O 1.0 O 1.25 O 1.35 QUESTION 44 Based on the information from Question 42 and 43, what would be the company's new leveraged beta if it were to change its capital structure to 50% debt and 50% equity (D/S=1.0) using the Hamada Equation? O 1.25 O 1.35 O 1.95 O 2.25 QUESTION 45 Based on the information from Question 42 ~ 44, what would be the company's new cost of equity if it were to change its capital structure to 50%…
Residual Distribution Model Puckett Products is planning for $2 million in capital expenditures next year. Puckett's target capital structure consists of 55% debt and 45% equity. If net income next year is $1 million and Puckett follows a residual distribution policy with all distributions as dividends, what will be its dividend payout ratio? Round your answer to two decimal places. ___%
33-Marhaba Company’s capital structure consists entirely of long-term debt and equity. The cost of capital for each component is shown as – before tax cost of debt (kd) 8% and cost of equity (ke) 15%. The proportion of capital for each component is Debt 40% and Equity 60%. What would be weighted average cost of capital of the company? Assume that the corporate tax rate is at 40%. a. 10.92% b. 12.2% c. 10.41% d. 8.88% Clear my choice
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