Purchase Solution

Weighted Average Cost of Capital

Not what you're looking for?

Ask Custom Question

The current interest rate on new debt is9%. The firm's marginal tax rate is 40%. It's capital structure, considered to be optimal, is as follows:

Debt $104,000,000
Common equity $156,000,000
Total liabilities and equity $260,000,000

A. Calculate Foust's after-tax cost of new debt and common equity. Calculate the cost of equity as D1/P0+g.
8.42/65.00+8%

B. Find Foust's weighted average cost of capital.

Purchase this Solution
Solution Summary

The solution explains the calculation of WACC

Solution Preview

Cost of Common Equity = D1/Po+g = (8.42/65)+.08=20.95%
After Tax ...

Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

View More Free Quizzes
Related BrainMass Solutions

  • Calculate the Weighted-Average Cost of Capital (WACC)

    Calculate GII weighted average cost of capital (WACC). GII's weighted-average cost of capital will be computed as follows: 1.

  • Capital Structure in a Perfect Market

    Suppose Rumolt's equity cost of capital is 10%, and its debt cost of capital is 5%. a. What is Mike's pretax weighted average cost of capital? Pretax weighted average cost of capital = b.

  • Discounting unlevered cash flows, cost of debt, WACC

    The weighted average cost of capital is determined by: c. adding the weighted average after tax cost of debt to the weighted average cost of equity.

  • Divisional Cost of Capital Approach vs Weighted Average Cost of Capital

    268840 Divisional Cost of Capital Approach vs Weighted Average Cost of Capital Please explain how to calculate the weighted average cost of capital and how it compares to divisional cost of capital approach. Thank you. Currently, Red Sun, Inc.'

  • WACC

    133650 WACC: Weighted Average Cost of Capital Determine the weighted average cost of capital (WACC) for the XYZ Company that will finance its optimal capital budget with $120 million of long-term debt (kd = 12.5%) and 180 million in retained earnings

  • Weighted Average Cost of Capital: Capital Investment Program

    320144 Weighted Average Cost of Capital: Capital Investment Program What is the Weighted Average Cost of Capital? How it is used in a capital investment program to select investments? What is the Weighted Average Cost of Capital?

  • Weighted (Average) Cost of Capital

    159495 Weighted (Average) Cost of Capital (Weighted average cost of capital) The target capital structure for QM Industries is 40 percent common stock, 10 percent preferred stock, and 50 percent debt.

  • Performa Balance Sheet - Weighted Average Cost of Capital

    362913 Performa Balance Sheet - Weighted Average Cost of Capital Weighted Average Cost of Capital 1. The after-tax cost of debt and the cost of equity as follows for a firm at various percentages of debt in its capital structure.

  • Calculate the weighted average cost of capital (WACC)

    389572 Calculate the weighted average cost of capital (WACC) #1 Determine the weighted average cost of capital for a firm given the follow info below: Equity : $200,000 shares;stock price of $73 Beta of 1.54; risk free rate of 4%; risk premium of

  • Weighted Average Cost of Capital and Capital Structure

    Weighted average cost of capital...........Ka ? Please see the attached file. Calculate United Business Forms' weighted average cost of capital in this posting.

View More Related Solutions