A company is looking to invest in a new plant in California. The plant will be financed with bonds that have a 6% coupon rate and will yield 7%. The company's tax rate is 40% and it's Weighted Average Cost of Capital is 9%. It expects to earn a return on the investment in the plan of 8%. In its decision to invest or not to invest, which cost of capital % listed above should the company use to compare to the return it expects to earn on its capital of 8%? A.The Weighted Average Cost of Capital of 9%. B.The bond coupon rate of 6%. C.The after tax bond yield of 4.2%. D.The bond yield of 7%
A company is looking to invest in a new plant in California. The plant will be financed with bonds that have a 6% coupon rate and will yield 7%. The company's tax rate is 40% and it's Weighted Average Cost of Capital is 9%. It expects to earn a return on the investment in the plan of 8%. In its decision to invest or not to invest, which cost of capital % listed above should the company use to compare to the return it expects to earn on its capital of 8%? A.The Weighted Average Cost of Capital of 9%. B.The bond coupon rate of 6%. C.The after tax bond yield of 4.2%. D.The bond yield of 7%
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 is looking to invest in a new plant in California. The plant will be financed with bonds that have a 6% coupon rate and will yield 7%. The company's tax rate is 40% and it's Weighted Average Cost of Capital is 9%. It expects to earn a return on the investment in the plan of 8%. In its decision to invest or not to invest, which cost of capital % listed above should the company use to compare to the return it expects to earn on its capital of 8%?
A.The Weighted Average Cost of Capital of 9%.
B.The bond coupon rate of 6%.
C.The after tax bond yield of 4.2%.
D.The bond yield of 7%
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