For a particular firm, the purchasers of common stock require an 11% rate of return, bonds are sold at a 7% interest rate and bank loans are available at 9%. The firm has a 38% combined tax rate. For the next year money available through common stock, bonds and bank loans is shown below. Funds Source Rate available Commons $40 stock 11% Million $20 Bonds 7% Million Bank $60 9% loans Million The after-tax weighted cost of capital for this firm is most nearly: 6.9% 7.2% 9.0% 9.3%
For a particular firm, the purchasers of common stock require an 11% rate of return, bonds are sold at a 7% interest rate and bank loans are available at 9%. The firm has a 38% combined tax rate. For the next year money available through common stock, bonds and bank loans is shown below. Funds Source Rate available Commons $40 stock 11% Million $20 Bonds 7% Million Bank $60 9% loans Million The after-tax weighted cost of capital for this firm is most nearly: 6.9% 7.2% 9.0% 9.3%
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter7: Analysis Of Financial Statements
Section: Chapter Questions
Problem 2P: Vigo Vacations has $200 million in total assets, $5 million in notes payable, and $25 million in...
Question
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![For a particular firm, the purchasers of common stock require an 11% rate of
return, bonds are sold at a 7% interest rate and bank loans are available at 9%.
The firm has a 38% combined tax rate. For the next year money available
through common stock, bonds and bank loans is shown below.
Funds
Source
Rate
available
Commons $40
stock
11%
Million
$20
Bonds
7%
Million
Bank
$60
9%
loans
Million
The after-tax weighted cost of capital for this firm is most nearly:
6.9%
7.2%
9.0%
9.3%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F15ac760f-1f7e-4c0d-a073-d60cc2bcf892%2F844a5bc0-73be-497c-bc9e-80a586c1c583%2Fadgnh4g_processed.jpeg&w=3840&q=75)
Transcribed Image Text:For a particular firm, the purchasers of common stock require an 11% rate of
return, bonds are sold at a 7% interest rate and bank loans are available at 9%.
The firm has a 38% combined tax rate. For the next year money available
through common stock, bonds and bank loans is shown below.
Funds
Source
Rate
available
Commons $40
stock
11%
Million
$20
Bonds
7%
Million
Bank
$60
9%
loans
Million
The after-tax weighted cost of capital for this firm is most nearly:
6.9%
7.2%
9.0%
9.3%
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