A) Describe how dollar cost averaging affects your investment portfolio over lon

Question

A) Describe how dollar cost averaging affects your investment portfolio over long periods of time when accumulating assets. Illustrate with an example.

B) Describe how dollar cost averaging affects your investment portfolio over long periods of time when withdrawing capital. Illustrate with an example.

C) After tax cost of debt is 4%, the company has $1 million in debt and half a million in equity. The cost of equity is 4%. What is the weighted average cost of capital? How many years will it take to double?

D) Using the question above (C), the pre-tax cost of debt is 6.67%. What is the marginal tax rate?

Explanation / Answer

C)

D)

Weighted average cost of capital = (Cost of equity*Weight of equity)+(Cost of debt *Weight of debt) = (4*.5/1.5)+(4*1/1.5) = 4.00 Thus, weighted average cost of capital is 4%

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