Started Dec 7 at 8:22pm Quiz Instructions Show Instructions Question 22 1 pts Ja

Question

Started Dec 7 at 8:22pm Quiz Instructions Show Instructions Question 22 1 pts Jake the Dog Inc. is investing in a new portable iguana killing machine that will cost $200,000. The machine has a useful life of 6 years and falls into the 5-year property class for the depreciation purposes. The IRS MACRS schedule for the six years is: (1) 20%, (2) 32%, (3) 1 9.2%. (4) 11.52%, (5) 11.52%, (6) Jake and can be sold for $50.000 at the end of the ake has 2000 outstanding 9% annual coupon and a price of $1085. Jake also has 60,000 shares of a beta of 2.45 (its Jaket he is a 5.76%. It will generate $50,000 per year of savings for 6-year period. Jake's corporate tax rate is 34%. In addition, J bonds with a $1000 par value, 20 years to maturity common stock outstanding that is selling for $45 per share. This stock has risky dog-dude!! shares preferred stock outstanding that ), the expected market return is 12% and the risk-free rate is 5%. Finally, Jake has 36,000 pays a 5.5% dividend and sells for $40 per share, what is the cost of equity capital? 0 18.15% 19.15% O 20.15% 21.15% 22.15% Honorlock is sharing your screen with app.honorlock.com Stop sharing Hide

Explanation / Answer

Cost of equity capital= risk free rate+ beta*(expected market return-risk free rate)= 5% +2.45(12%-5%)= 22.15%

Last option is correct

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