Multiple choice: Assuming that a company’s project is to be funded as follows: 40% from bank loan, 30% from issuance of ordinary shares, and 30% from issuance of preference shares. Per company’s computations, the after tax cost of capital are as follows: 10%, 20% and 12% for bank loan, ordinary shares, and preference shares, respectively. If the tax rate is 30%, which cost of capital (rounded off) should the company use?  • 10% • 5% • 30% • 14%

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
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Multiple choice:

Assuming that a company’s project is to be funded as follows: 40% from bank loan, 30% from issuance of ordinary shares, and 30% from issuance of preference shares. Per company’s computations, the after tax cost of capital are as follows: 10%, 20% and 12% for bank loan, ordinary shares, and preference shares, respectively. If the tax rate is 30%, which cost of capital (rounded off) should the company use? 
• 10%
• 5%
• 30%
• 14%

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