National Corporation finances its projects with 40 percent debt, 10 percent preferred stock, and 50 percent common stock. · The company can issue bonds at a yield to maturity of 8.4 percent. · The cost of preferred stock is 9 percent. · The risk-free rate is 6.57 percent. · The market risk premium is 5 percent. · National Corporation’ beta is equal to 1.3. · Assume that the firm will be able to use retained earnings to fund the equity portion of its capital budget. · The company’s tax rate is 30 percent. What is the company’s weighted average cost of capital (WACC)?
National Corporation finances its projects with 40 percent debt, 10 percent preferred stock, and 50 percent common stock. · The company can issue bonds at a yield to maturity of 8.4 percent. · The cost of preferred stock is 9 percent. · The risk-free rate is 6.57 percent. · The market risk premium is 5 percent. · National Corporation’ beta is equal to 1.3. · Assume that the firm will be able to use retained earnings to fund the equity portion of its capital budget. · The company’s tax rate is 30 percent. What is the company’s weighted average cost of capital (WACC)?
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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National
· The company can issue bonds at a yield to maturity of 8.4 percent.
· The cost of preferred stock is 9 percent.
· The risk-free rate is 6.57 percent.
· The market risk premium is 5 percent.
· National Corporation’ beta is equal to 1.3.
· Assume that the firm will be able to use
· The company’s tax rate is 30 percent.
What is the company’s weighted average cost of capital (WACC)?
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