Tiger Valley Inc recently had you estimate the cost of each of its capital sources. The firm typically finances with a combination of long-term debt, preferred stock, and common equity. The firm has a target of 40% debt financing and 15% preferred stock financing with the remainder of funds being raised from common equity. The after-tax cost of preferred stock has been estimated to be 4.4% while the after-tax cost of long-term debt has been estimated to be 5.2%. Due to its riskiness, the after-tax cost of equity has been estimated at a much higher rate of 12.8%. Estimate the firm’s WACC. Assume a tax rate of 40%.
Tiger Valley Inc recently had you estimate the cost of each of its capital sources. The firm typically finances with a combination of long-term debt, preferred stock, and common equity. The firm has a target of 40% debt financing and 15% preferred stock financing with the remainder of funds being raised from common equity. The after-tax cost of preferred stock has been estimated to be 4.4% while the after-tax cost of long-term debt has been estimated to be 5.2%. Due to its riskiness, the after-tax cost of equity has been estimated at a much higher rate of 12.8%. Estimate the firm’s WACC. Assume a tax rate of 40%.
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
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Tiger Valley Inc recently had you estimate the cost of each of its capital sources. The firm typically finances with a combination of long-term debt, preferred stock, and common equity. The firm has a target of 40% debt financing and 15% preferred stock financing with the remainder of funds being raised from common equity. The after-tax cost of preferred stock has been estimated to be 4.4% while the after-tax cost of long-term debt has been estimated to be 5.2%. Due to its riskiness, the after-tax
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