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 before-tax 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 risk-free 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 risk-free rate is 5 percent, the return on the market is 12 percent, and
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