Deavyanne Johnston, the engineering manager at TZO Chemicals, is conducting an evaluation of alternatives based on ROR. She was given the following data and told that due to the unusually large number of investment opportunities the company now has, all future projects must have a ROR that is at least 12.5% above the company’s weighted average cost of capital on an after-tax basis. If the company’s effective tax rate is 32%, what is the after-tax MARR she should use in her evaluation? Funds Source Amount, $ Cost, % Retained earnings 4 million 7.4 Stock sales 6 million 4.8 Long-term loans 5 million 10.4 Budgeted funds for project 15 million
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
Deavyanne Johnston, the engineering manager at
TZO Chemicals, is conducting an evaluation of alternatives
based on ROR. She was given the following
data and told that due to the unusually large
number of investment opportunities the company
now has, all future projects must have a ROR that
is at least 12.5% above the company’s weighted
average cost of capital on an after-tax basis. If the
company’s effective tax rate is 32%, what is the
after-tax MARR she should use in her evaluation?
Funds Source Amount, $ Cost, %
Stock sales 6 million 4.8
Long-term loans 5 million 10.4
Budgeted funds for project 15 million
Trending now
This is a popular solution!
Step by step
Solved in 6 steps with 5 images
