Bus361 solutions to suggested problems of Chapter 10

Bus361 solutions to suggested problems of Chapter 10 -...

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Unformatted text preview: Chapter 10 The Cost of Capital Solutions to End-Of-Chapter Problems 10-1 r d (1 – T) = 0.12(0.65) = 7.80%. 10-2 P p = $47.50; D p = $3.80; r p = ? r p = p p P D = 50 . 47 $ 80 . 3 $ = 8%. 10-3 40% Debt; 60% Common equity; r d = 9%; T = 40%; WACC = 9.96%; r s = ? WACC= (w d )(r d )(1 – T) + (w c )(r s ) 0.0996= (0.4)(0.09)(1 – 0.4) + (0.6)r s 0.0996= 0.0216 + 0.6r s 0.078 = 0.6r s r s = 13%. 10-4 P = $30; D 1 = $3.00; g = 5%; r s = ? a. r s = 1 P D + g = 00 . 30 $ 00 . 3 $ + 0.05 = 15%. b. F = 10%; r e = ? r e = ) F 1 ( P D 1- + g = ) 10 . 1 ( 30 $ 00 . 3 $- + 0.05 = 00 . 27 $ 00 . 3 $ + 0.05 = 16.11%. 10-5 Projects A, B, C, D, and E would be accepted since each project’s return is greater than the firm’s WACC. 10-6 a. r s = 1 P D + g = 23 $ 14 . 2 $ + 7% = 9.3% + 7% = 16.3%....
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This note was uploaded on 04/21/2009 for the course BUS 338W-1 taught by Professor White during the Winter '09 term at University of Michigan-Dearborn.

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Bus361 solutions to suggested problems of Chapter 10 -...

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