A company is planning a $80 million expansion the expansion is to be financed by

Question

A company is planning a $80 million expansion the expansion is to be financed by selling $30 million in the new debt and $50 million in new common stock the before tax required rate of return on debt 8% and the required rate of return on equity is 16% if the company is in the 40% tax bracket what is the firms cost of capital A company is planning a $80 million expansion the expansion is to be financed by selling $30 million in the new debt and $50 million in new common stock the before tax required rate of return on debt 8% and the required rate of return on equity is 16% if the company is in the 40% tax bracket what is the firms cost of capital

Explanation / Answer

Answer )

Weight of Debt = 30 million / (30+50)= 37.5%

Weight of equity = 50 million / (30+50) = 62.5%

Cost of debt = 8%

Cost of equity = 16%

WACC = 37.5%*8%*(1-0.40) + 62.5%*16% = 11.80%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.