NuStuff Inc. has raised $8M by selling bonds at an average rate of 7%. NuStuff’s stockholders expect a 14% rate of return, and there is $15M in common stock and retained earnings. NuStuff has $4M in loans at an average rate of 9%. What is the firm’s cost of capital: (a) Before taxes? (b) After taxes with a combined tax rate of 26%?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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NuStuff Inc. has raised $8M by selling bonds at an average rate of 7%. NuStuff’s stockholders expect a 14% rate of return, and there is $15M in common stock and retained earnings. NuStuff has $4M in loans at an average rate of 9%. What is the firm’s cost of capital:

(a) Before taxes?

(b) After taxes with a combined tax rate of 26%?

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