Posted: December 9th, 2015

Finance Homework

Finance Homework

A company is 40% financed by risk-free debt. The interest rate is 10%, the expected market risk premium is 8%, and the beta of the company’s common stock is .5.

Risk Free Debt    Interest Rate    Market Risk Premium    Beta    Taxes
40%    10%    8%    0.5    35%

a.      What is the company cost of capital?
b.      What is the after-tax WACC, assuming that the company pays tax at a 35% rate?

Answers:

Step 1:
r(d)=     10%
r(e)=    0.08
D/V    0.6         TIP: D + E = V
E/V    0.4

Step 2:
a.         Formula (in words)    Calculation
Cost of Capital    T    C

b.    WACC    T    C

PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET A GOOD DISCOUNT 🙂