Abc A firm is financed with 40% risk-free debt and 60%equity. The risk-free rate is 7%, the firm's cost ofequity capital is 18%, and the firm's marginal taxrate is 35%. What is the firm's weighted average costof capital?

1. Gather the Information:Weight of Debt (Wd): 40% or 0.40Weight of Equity (We): 60% or…

Answered: A firm is financed with 40% risk-free…

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter14: Security Structures And Determining Enterprise Values

Section: Chapter Questions

Problem 1hM

See similar textbooks

Similar questions

What is a firm's weighted average cost of capital for a firm that is financed 45% by debt? The debt has a 10% required return and the equity has a 17% required return. Thetax rate is 30%
Suppose that your firm has a cost of equity of 10%, cost of preferred stock of 8%, and an after-tax cost of debt of 6%. If the firm has 30% in debt, 5% in preferred stock, and 65% in equity, what is the firm's weighted average cost of capital (WACC)? Tax rate is 20%.
A firm has a capital structure with $75 million in equity and $75 million in debt. The cost of equity capital is 10% and the pretax cost of debt is 7%. If the marginal tax rate of the firm is 35%, compute the weighted average cost of capital of the firm. A. 7.6% B. 7.3% C. 8.4% D. 8.0%
A company is estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free rate (rRF) is 5% and the market risk premium (rM – rRF) is 6%. Currently the company’s cost of equity, which is based on the CAPM, is 14% and its tax rate is 20%. Find the firm’s current leveraged beta using the CAPM 1.0 1.5 1.6 1.7
You are analyzing the cost of capital for a firm that is financed with 65 percent equity and 35 percent debt.The cost of debt capital is 8 percent, while the cost of equity capital is 20 percent for the firm. What is the overall cost of capital for the firm? Select one: a. 20.2 % b. 15.8 % c. 12.2 % d. None of these
A firm has EBIT of $30 million. It has debt of $100 million and the cost of debt is 7%. Its unlevered cost of capital is 10% and tax rate at 35%. a) What’s its unlevered firm value? b) What’s its levered firm value? c) What’s its equity value?
Help me please
A company has determined that its optimal capital structure consists of 34 percent debt and the rest is equity. Given the following information, calculate the firm's weighted average cost of capital. Rd = 7.8%; Tax rate = 28 %: Po = $ 39.01; Growth = 5.1%; and D1 = $ 1.02. Show your answer to the nearest .1% Your Answer: Answer
What proportion of a firm is equity financed if the WACC is 14%, the after-tax cost of debt is 7.0%, the tax rate is 35%, and the required return on equity is 17%? (Answer as a whole percentage, i.e. 5.25%, not 0.0525)
Suppose Alcatel-Lucent has an equity cost of capital of 9.2%, market capitalization of $10.95 billion, and an enterprise value of $15 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.9% and its marginal tax rate is 38%. a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here,? c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is%. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 1 FCF ($ million) - 100 50 Print C Done 2 99 3 66 X
Your boss has just asked you to calculate your firm's cost of capital. Below is potentially relevant information for your calculation. What is your firm's Weighted Average Cost of Capital? Common Equity: Book Value = $100 million, Market Value = $150 million, Net Income from most recent fiscal year = $12 million, Required rate of return (from CAPM) = 11%, Dividend Yield = 2%. Debt: Book Value = $100 million, Market Value = $90 million, average coupon rate = 4%, average yield to maturity = 4.4%, average maturity = 10 years. Corporate Tax Rate = 21%.
A firm has a total market value of $10 million while its debt has a market value of $4 million. What is the after-tax weighted average cost of capital if the before-tax cost of debt is 10% the cost of equity is 15%, and the tax rate is 21%? Multiple Choice A) 10.4% B) 8.8% C) 12.2% D) 13.0%

SEE MORE QUESTIONS

Recommended textbooks for you

Entrepreneurial Finance

Finance

ISBN:

9781337635653

Author:

Leach

Publisher:

Cengage

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Financial Reporting, Financial Statement Analysis…

Finance

ISBN:

9781285190907

Author:

James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:

Cengage Learning

Entrepreneurial Finance

Finance

ISBN:

9781337635653

Author:

Leach

Publisher:

Cengage

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Financial Reporting, Financial Statement Analysis…

Finance

ISBN:

9781285190907

Author:

James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS

A firm is financed with 40% risk-free debt and 60% equity. The risk-free rate is 7%, the firm's cost of equity capital is 18%, and the firm's marginal tax rate is 35%. What is the firm's weighted average cost of capital?