Mentone Global Corporation (MGC) is attempting to evaluate two alternative capital structures – X and Y. The following table shows the two structures along with relevant cost data. The company is subject to a 35% tax rate. The risk-free rate is 4% and the market return is currently 9%. Required: a) Calculate the after-tax cost of debt for each capital structure. b) Calculate the cost of preferred shares for Y capital structure. c) Calculate the cost of ordinary shares for each capital structure.
Mentone Global Corporation (MGC) is attempting to evaluate two alternative capital structures – X and Y. The following table shows the two structures along with relevant cost data. The company is subject to a 35% tax rate. The risk-free rate is 4% and the market return is currently 9%.
Required:
a) Calculate the after-tax cost of debt for each capital structure.
b) Calculate the cost of
c) Calculate the cost of ordinary shares for each capital structure.
d) Calculate the after tax Weighted Average Cost of Capital (WACC) for each capital structure.
Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and specify the other subparts (up to 3) you’d like answered.
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