Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. genentech inc. currently has a capital structure o

Genentech Inc. currently has a capital structure of 70 percent debt and 30 percent equity,...

80.2K

Verified Solution

Question

Accounting

Genentech Inc. currently has a capital structure of 70 percent debt and 30 percent equity, but is considering a new product that will be produced and marketed by a separate division. The new division will have a capital structure of 55 percent debt and 45 percent equity. Genentech has a current beta of 3.2, but is not sure what the beta for the new division will be. Celgene Corporation is a firm that produces a product similar to the product under consideration by Genentech. Celgene has a beta of 2.4, a capital structure of 40 percent debt and 60 percent equity and a marginal tax rate of 40 percent. Genentech's tax rate is 30 percent. What will be Genentech's weighted cost of capital for this new division if the after-tax cost of debt is 10 percent, the risk-free rate is 6 percent, and the market risk premium is 12 percent?

a) 25.38% b) 16.79% c) 23.73% d) 11.40%

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students