Cost of capital - sample homework assignment (expected returns, WACC, after-tax cost, and more...)

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• Net present value (CC Cushions Company)

  1) First Calculate WACC (weighted average cost of capital) with which to discount the cash flows Calculate the after tax cost of debt Marginal Tax rate T = 34% Pretax cost of debt= kd= 6.00% After tax cost

• Cost of Capital Help

  We can find the cost of capital by finding WACC as follows: - WACC is the weighted average cost of capital whereby the target proportions of debt and equity along with the component costs of capital are used to calculate.

• Finance, WACC, beta, portfolio returns etc.

  Calculate its after-tax weighted average cost of capital. TUTORIAL The WACC (Weighted average cost of capital) expresses the total cost, to the firm, for all sources of financing taken.

• weighted-average-cost-of-capital decision making

  Since the yield on a firm's bonds is equal to its pre-tax cost of debt, rB equals 11%. The covariance between Neon's stock returns and returns on the market portfolio is 0.031. The standard deviation of market returns is 0.16.

• Evaluating projects: market risk and decision making

  r A = 16.36 % =7% + 1.17 * 8% We now calculate weighted avaerage cost of capital since now there is debt in the capital structure required return on debt= 9.30% Marginal Tax rate= 40.00% After tax cost of debt=r(1-Tax

• Multiple choice

  WACC = Proportion of debt X after tax cost of debt + Proportion of preferred stock X cost of preferred stock + Proportion of common stock X cost of common stock WACC = 0.4 X 6% + 0.1 X 7.5% + 0.5X13.25% WACC = 9.78% The solution explains some multiple

• Working Capital and Financing

  Since the after-tax cost of debt is lower than equity for many corporations, why not use debt only or mostly?

• Best Alternative Capital Structure

  Since the after-tax cost of debt is lower than equity for many corporations, why not use debt only or mostly?

• Firm's WACC

  The after-tax cost of debt is 4.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 11.50%. The firm will not be issuing any new stock. What is the firm's WACC?

• Optimal capital budget

  Up to $2 million, after tax cost = 10% X (1-0.4) = 6% b. Beyond $2 million, after tax cost = 14% X (1-0.4) = 8.4% 2. Cost of preferred stock = 12% 3. Cost of common stock a.