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%
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
Related questions
Question
None
Transcribed Image Text: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%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education