A company has found that its common equity capital shares have a beta equal to 1.5...

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Finance

A company has found that its common equity capital shares have abeta equal to 1.5 while the risk-free return is 8 % and theexpected return on the market is 14 %.
It has 7-year semiannual maturity bonds outstanding with a price of$767.03 that have a coupon rate of 7 %.
It has preferred stock that sells for $25 and pays a dividend of$4.
The firm is financed with $120,000,000 of common shares (marketvalue), $45,000,000 of preferred stock, and $80,000,000 ofdebt.
What is its after-tax cost of capital, if it is subject to a 35 %marginal tax rate?
Step 1: find weights for debt, preferrred, and common.
Step 2:find the costs of debt, preferred, and common.
Step 3:find wacc
Show yourwork and highligth your answer.
Use excelfor calculations.

Answer & Explanation Solved by verified expert

4.2 Ratings (594 Votes)

1 Total Capital value Value of Equity Value of Debt Value of Preferred equity 1200000008000000045000000 245000000 Weight of Equity Value of EquityTotal Capital Value 120000000245000000 04898 See Answer

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A company has found that its common equity capital shares have abeta equal to 1.5 while the risk-free return is 8 % and theexpected return on the market is 14 %.It has 7-year semiannual maturity bonds outstanding with a price of$767.03 that have a coupon rate of 7 %.It has preferred stock that sells for $25 and pays a dividend of$4.The firm is financed with $120,000,000 of common shares (marketvalue), $45,000,000 of preferred stock, and $80,000,000 ofdebt.What is its after-tax cost of capital, if it is subject to a 35 %marginal tax rate?Step 1: find weights for debt, preferrred, and common.Step 2:find the costs of debt, preferred, and common.Step 3:find waccShow yourwork and highligth your answer.Use excelfor calculations.

Step 1: find weights for debt, preferrred, and common.
Step 2:find the costs of debt, preferred, and common.
Step 3:find wacc
Show yourwork and highligth your answer.
Use excelfor calculations.