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? What is the amount of the weighted after tax cost of debt? Calculate the firm’s weighted average cost of capital. Thank you
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? What is the amount of the weighted after tax cost of debt? Calculate the firm’s weighted average cost of capital. Thank you
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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A company has determined that its optimal capital structure: of 40% debt and 60% equity. The firm
• Cost of debt = 8%.
• Payout ratio = 50%.
• Tax rate = 40%.
• Flotation
• Growth rate = 0%
The after tax cost of debt is?
What is the amount of the weighted after tax cost of debt?
Calculate the firm’s weighted average cost of capital.
Thank you
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