For a particular firm, the purchasers of common stock require an 11% rate of return, bonds are sold at a 7% interest rate and bank loans are available at 9%. The firm has a 38% combined tax rate. For the next year money available through common stock, bonds and bank loans is shown below. Funds Source Rate available Commons $40 stock 11% Million $20 Bonds 7% Million Bank $60 9% loans Million The after-tax weighted cost of capital for this firm is most nearly: 6.9% 7.2% 9.0% 9.3%
For a particular firm, the purchasers of common stock require an 11% rate of return, bonds are sold at a 7% interest rate and bank loans are available at 9%. The firm has a 38% combined tax rate. For the next year money available through common stock, bonds and bank loans is shown below. Funds Source Rate available Commons $40 stock 11% Million $20 Bonds 7% Million Bank $60 9% loans Million The after-tax weighted cost of capital for this firm is most nearly: 6.9% 7.2% 9.0% 9.3%
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter7: Analysis Of Financial Statements
Section: Chapter Questions
Problem 2P: Vigo Vacations has $200 million in total assets, $5 million in notes payable, and $25 million in...
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