A firm has three components in its capital structure: debt, preference shares and ordinary shares. The before-tax cost of debt is 4.0%, the before-tax cost of preference shares is 8.7% and the before-tax cost of ordinary shares is 11.9%. The proportion of debt in the capital structure is 20%, the proportion of preference shares is 15% and the proportion of ordinary shares is 65%. The corporate tax rate is 30%. What is the firm's Weighted Average Cost of Capital? O a. 9.60% O b. 9.21% O c. 9.84% O d. 6.89%
A firm has three components in its capital structure: debt, preference shares and ordinary shares. The before-tax cost of debt is 4.0%, the before-tax cost of preference shares is 8.7% and the before-tax cost of ordinary shares is 11.9%. The proportion of debt in the capital structure is 20%, the proportion of preference shares is 15% and the proportion of ordinary shares is 65%. The corporate tax rate is 30%. What is the firm's Weighted Average Cost of Capital? O a. 9.60% O b. 9.21% O c. 9.84% O d. 6.89%
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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Transcribed Image Text:A firm has three components in its capital structure: debt, preference shares and ordinary shares. The before-tax cost of debt is 4.0%, the before-tax cost of
preference shares is 8.7% and the before-tax cost of ordinary shares is 11.9%. The proportion of debt in the capital structure is 20%, the proportion of
preference shares is 15% and the proportion of ordinary shares is 65%. The corporate tax rate is 30%.
What is the firm's Weighted Average Cost of Capital?
a. 9.60%
O b. 9.21%
O c. 9.84%
O d. 6.89%
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