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Old Exam Questions  Cost of Capital
Page 24 of 27 Pages
Given this information, determine the weighted average (marginal) cost of capital of
the very first dollar
to be raised.
A.
10.96%
B.
12.07%
C.
11.33%
D.
12.44%
E.
11.70%
46.
Assume that a firm’s current capital structure consists of 50 percent debt and 50
percent common stock (a debt/equity ratio of 1.00). Assume that the firm’s beforetax
cost of debt is 6 percent, that its tax rate is 40 percent, and that its cost of common
stock is 11 percent. Also assume that the riskfree rate is 4 percent and that the
market risk premium is 5 percent (you should now be able to calculate the firm’s
levered beta). Given this information, determine what the firm’s new weighted average
cost of capital will be if it changes to a capital structure of 75 percent debt and 25
percent equity.
A.
6.1900%
B.
7.9075%
C.
6.7625%
D.
8.4800%
E.
7.3350%
47.
Assume that the riskfree rate is 5 percent, the return on the market is 12 percent, and
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 Spring '08
 Staff
 Cost Of Capital, Debt

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