The unlevered beta is 1.0. The both the risk-free rate and market risk premium is 5%. The applicable corporate tax rate for the company is 30%.What is the Weighted Average Cost of Capital on the optimal capital structure? (No rounding off until the final answer) Blue Co. is in the process of determine its optimal capital structure. The followingoption is available to Blue Co.:CapitalDebtDebt toBefore-taxStructureRatioEquity Ratiocost of debtA25%33%8%B35%53.85%10%

In this we have to determine the levered Beta and find out cost of equity and from that we can get…

Answered: he unlevered beta is 1.0. The both the…

he unlevered beta is 1.0. The both the risk-free rate and market risk premium is 5%. The applicable corporate tax rate for the company is 30%. What is the Weighted Aver

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

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Question

The unlevered beta is 1.0. The both the risk-free rate and market risk premium is 5%. The applicable corporate tax rate for the company is 30%.

What is the Weighted Average Cost of Capital on the optimal capital structure? (No rounding off until the final answer)

Blue Co. is in the process of determine its optimal capital structure. The following
option is available to Blue Co.:
Capital
Debt
Debt to
Before-tax
Structure
Ratio
Equity Ratio
cost of debt
A
25%
33%
8%
B
35%
53.85%
10%

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