The wod pokem corporation needs to raise capital for an expansion of their batte

Question

The wod pokem corporation needs to raise capital for an expansion of their battery operations $2.5 million is needed for the venture . the planned capitlization structure is as following. short term account at BM bank 10%, interest 8%. public offering bonds 20% and interst 6%. tyberius investment 10% and interest 10%. sludge FM bank 20% and interest 12%. retained earning 15% and interest 10%. commen stock 25 and interest 15%.
a- determine the after tax cost with tax rate 34%?

b- what is the oppertonity cost :

120 million, 270 million, 285 million,300 million?

Explanation / Answer

(a)

After tax cost=10%*8%*(1-34%)+20%*6%*(1-34%)+10%*10%*(1-34%)+20%*12%*(1-34%)+15%*10%+25%*15%=8.814%

(b)

Opportunity cost=120 Million*8.814%=$10.58 million

Opportunity cost=270 Million*8.814%=$23.8 million

Opportunity cost=285 Million*8.814%=$25.12 million

Opportunity cost=300 Million*8.814%=$26.44 million

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