ACME has a capital structure consisting of 35% debt and 65% equity. ACME's debt currently has a 8% yield to maturity. Using the CAPM, ACME estimates that its cost of equity is currently 13% using a the risk-free rate of 4% and a market risk premium of 6%. The company has a 25% tax rate. What would the company's new cost of equity be if the company decided to adopt a capital structure of 50% debt, 50% equity? (You can reuse calculations from the previous problem). 13.87% O 15.22% O 14.89% O 14.45% O 15.56%
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
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