A company has determined that its optimal capital structure: of 40% debt and 60% equity. The firm forecasted that it will not have enough retained earnings to fund the equity portion of its capital structure. As of today this company has an outstanding shares of 10,000. The following are data collected by the firm whose net income is P40,000 and stock price is P25: • Cost of debt = 8%. • Payout ratio = 50%. • Tax rate = 40%. • Flotation cost on additional equity = 15%. • Growth rate = 0%. The after tax cost of debt is? a. 4.8% b. 5.1% c. 5.5% d. 5.9%
A company has determined that its optimal capital structure: of 40% debt and 60% equity. The firm forecasted that it will not have enough retained earnings to fund the equity portion of its capital structure. As of today this company has an outstanding shares of 10,000. The following are data collected by the firm whose net income is P40,000 and stock price is P25: • Cost of debt = 8%. • Payout ratio = 50%. • Tax rate = 40%. • Flotation cost on additional equity = 15%. • Growth rate = 0%. The after tax cost of debt is? a. 4.8% b. 5.1% c. 5.5% d. 5.9%
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 7P
Related questions
Question
A company has determined that its optimal capital structure: of 40% debt and 60% equity. The firm
a. 4.8%
b. 5.1%
c. 5.5%
d. 5.9%
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT