Cost of Capital 8 - 6. A firms optimal capital structure c...

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Old Exam Questions - Cost of Capital Page 8 of 27 Pages 6. A firm’s optimal capital structure consists of 40 percent debt, 10 percent preferred stock, and 50 percent common stock. Assume that the firm’s before-tax cost of debt is 8 percent and that its tax rate is 40 percent. Also assume that the firm’s cost of preferred stock is 10 percent and that its cost of common stock is 15 percent. Calculate the firm’s weighted average cost of capital (WACC). A. 10.72% B. 10.42% C. 10.52% D. 10.82% E. 10.62% 7. A firm’s optimal capital structure consists of 35 percent debt, 5 percent preferred stock, and 60 percent common stock. Assume that the firm’s before-tax cost of debt is 6 percent and that its tax rate is 40 percent. Also assume that the firm’s cost of preferred stock is 7 percent and that its cost of common stock is 11 percent. Calculate the firm’s weighted average cost of capital (WACC). A.
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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