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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Give me answer within an hour please its very urgent I will give you upvotes ...thankyou..
![Weighted Average Cost of Capital
The Mystic Company is trying to determine its WACC. The following data is available:
U.S. Treasury Bond rate
Dow Jones 20 yr. average retun
Current share price
Mystic's Beta
Mystic's tax rate
Dividends paid per share
Mystic's debt ratio
Bank's loan rate to Mystic
4%
8%
$40
1.3
21%
$1.50
60%
8%
Estimate Mystic's WACC
What does it's WACC represent and how should it be used?
Explain what the cost of equity is.
Why do we calculate the after tax cost of debt? Why not the after tax cost of equity?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe55123cb-2956-423d-98b7-a30f49a91cde%2F475e433a-7d18-4433-879e-18a654e44def%2Ffznxfhq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Weighted Average Cost of Capital
The Mystic Company is trying to determine its WACC. The following data is available:
U.S. Treasury Bond rate
Dow Jones 20 yr. average retun
Current share price
Mystic's Beta
Mystic's tax rate
Dividends paid per share
Mystic's debt ratio
Bank's loan rate to Mystic
4%
8%
$40
1.3
21%
$1.50
60%
8%
Estimate Mystic's WACC
What does it's WACC represent and how should it be used?
Explain what the cost of equity is.
Why do we calculate the after tax cost of debt? Why not the after tax cost of equity?
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