BUS_320_Chapter_10_Assignment_Solutions

BUS_320_Chapter_10_Assignment_Solutions - (3.00 /...

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BUS 320 Chapter 10 Assignment Solutions 1) After-tax Cost of Debt = (12%) (1 – T) = (12%) ( 1 - .35) = 7.8% 2) Cost of Preferred Stock = 3.80 / 47.50 = 8.0% 3) WACC = (% Debt)(Cost of Debt) + (% Equity)(Cost of Equity) Cost of Debt = (9%) (1 -.40) = 5.4% 9.96% = (.40) (5.4%) + (.60) ( Cost of Equity) Cost of Equity = 13.0% 4) a) Cost of R/E = (3.00 / 30.00) + .05 = 15.0% b) Cost of Equity =
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Unformatted text preview: (3.00 / 30.00-3.00) + .05 = 16.1% 5) Accept A,B,C,D, and E since ROR > WACC for each of these projects. 6) a) Cost of R/E = (3.18 / 36.00) + .06 = 14.8% b) Cost of Stock = (3.18 / 32.40) + .06 = 15.8% 7) Cost of Stock = ((2.00)(1.07) / 22.50) + .07 = 16.5% Cost of Debt = (12%) (1 - .40) = 7.2% So, WACC = (.40) (7.2%) + (.60) (16.5%) = 12.78%...
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This note was uploaded on 01/11/2011 for the course BUS 320 taught by Professor Sloan during the Winter '08 term at N.C. State.

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