Explore BrainMass
Share

Explore BrainMass

    Effect on cost of capital

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Please see attached file.

    How would each of the following affect a firm's cost of debt, rd(1-T); its cost of equity, rs; and its weighted average cost of capital, WACC? Indicate by a plus (+), a minus (-), or a zero (0) if the factor would raise, lower, or have an indeterminate effect on the item in question. Assume other things are held constant.

    Rd(1-T) Rs WACC
    The corporate tax rate is lowered
    The Federal Reserve tightens credit
    The firm doubles the amount of the capital it raises during the year
    The firm expands into a risky new area
    Investors become more risk averse

    © BrainMass Inc. brainmass.com October 9, 2019, 9:44 pm ad1c9bdddf
    https://brainmass.com/business/weighted-average-cost-of-capital/effect-cost-capital-196015

    Attachments

    Solution Preview

    Please see the attached file

    How would each of the following affect a firm's cost of debt, rd(1-T); its cost of equity, rs; and its weighted average cost of capital, WACC? Indicate by a plus (+), a minus (-), or a zero (0) if the factor would raise, lower, or have an indeterminate effect on the item in question. Assume other things are held ...

    Solution Summary

    The solution explains the effect of given transactions on the cost of capital.

    $2.19