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6. The market value of Company T's equity is $15.0 million, and the market value of its risk-free debt is $5.0 million. If the required rate of return on the equity is 20.0% and on the debt is 8.0%, calculate the company's cost of capital. (Assume no taxes) 17.00% O 20.00% 8.10% 9.30%

6. The market value of Company T's equity is $15.0 million, and the market value of its risk-free debt is $5.0 million. If the required rate of return on the equity is 20.0% and on the debt is 8.0%, calculate the company's cost of capital. (Assume no taxes) 17.00% O 20.00% 8.10% 9.30%

Essentials Of Investments
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
Section: Chapter Questions
Problem 1PS
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FINANCE1A

6th Question

4. Calculate the degree of financial leverage for a firm with EBIT of $6,000,000, fixed cost of $3,000,000, interest expense of $1,000,000, preferred stock dividends of 800,000, and a 40 percent tax rate O 6.00 9.00 1.43 1.20 5. What is the current price of a share of stock when the current dividend is $4.75, the growth rate is 7 percent, and the investor's required rate of return is 11 percent? $118.75 $43.16 $46.20 $127.06 6. The market value of Company T's equity is $15.0 million, and the market value of its risk-free debt is $5.0 million. If the required rate of return on the equity is 20.0% and on the debt is 8.0%, calculate the company's cost of capital. (Assume no taxes) 17.00% 20.00% 8.10% 9.30%
Transcribed Image Text:4. Calculate the degree of financial leverage for a firm with EBIT of $6,000,000, fixed cost of $3,000,000, interest expense of $1,000,000, preferred stock dividends of 800,000, and a 40 percent tax rate O 6.00 9.00 1.43 1.20 5. What is the current price of a share of stock when the current dividend is $4.75, the growth rate is 7 percent, and the investor's required rate of return is 11 percent? $118.75 $43.16 $46.20 $127.06 6. The market value of Company T's equity is $15.0 million, and the market value of its risk-free debt is $5.0 million. If the required rate of return on the equity is 20.0% and on the debt is 8.0%, calculate the company's cost of capital. (Assume no taxes) 17.00% 20.00% 8.10% 9.30%
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