Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. you have been asked to review the cost of capital

You have been asked to review the cost of capital computation for Lemur Inc., a...

90.2K

Verified Solution

Question

Finance

You have been asked to review the cost of capital computation for Lemur Inc., a small

retail company.

- The company currently has 80 million shares trading at $10 a share, no

conventional debt and has estimated its cost of capital to be 10% (based upon a 100%

equity ratio).

- However, the firm has lease commitments of $ 25 million a year for the

next 5 years and $ 15 million a year for the following 3 years.

If the pre-tax cost of debt for the firm is 4% and the marginal tax rate is 40%, estimate the correct cost of capital.

(You can assume that the companys cost of equity will remain unchanged)

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

Geometry
1.2K views

Decide whether the given ratios could be used to find missing side not matter D...

Basic Math
1.2K views

Two rolls of a fair die. Let x and y be the results of the...

Geometry
1.2K views

between characters For example 3 5 15 4 Help Lecture 45 Ex 45 3 3...

Basic Math
1.2K views

Consider the following scenario The rate of increase in the number of people who have...

Algebra
1.2K views

is it correct to simplify these fractions like this 2x 1 x 1 x 3...

Accounting
1.2K views

Bau Long-Haul, Inc., is considering the purchase of a tractor-trailer that would cost $283,207, would...

Accounting
1.2K views

Flynn Fireballer has been playing baseball since he was five years old and has always...

Accounting
1.2K views

Simon Company's year-end balance sheets follow, Current Yr 1 Yr Ago 2 Yrs Ago At...

Accounting
1.2K views

If a company bought a fixed asset for $10,000 on Jan 1 with an estimated...

Accounting
1.2K views

Required information The following information applies to the questions displayod below.] Matt and Meg Comer...

Accounting
1.2K views

The production department of Zan Corporation has submitted the following forecast of units to be...

Finance
1.2K views

What is the simple (undiscounted) payback period in years for a $100,000 project with expected...