FINC 350 HOMEWORK WEEK 5

FINC 350 HOMEWORK WEEK 5 - FINANCE 350 HOMEWORK WEEK 5...

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FINANCE 350 HOMEWORK WEEK 5 Question 1 Debreu Beverages has an optimal capital structure that is 50% common equity, 40%  debt, and 10% preferred stock. Debreu's pretax cost of equity is 12%. Its pretax cost of preferred  equity is 7%, and its pretax cost of debt is also 7%. If the corporate tax rate is 35%, what is the  weighed average cost of capital?  1)  between 7% and 8% 2)  between 8% and 9% 3)  between 9% and 10% 4)  between 10% and 12% Question 2 Given an optimal capital structure that is 50% debt and 50% common stock,  calculate the weighted average cost of capital for Stone Corp given the following additional  information:   1) less than 9.5%. 2) more than 9.5% and less than 10.25%. 3) more than 10.25% and less than 11%. 4) more than 11%. Question 3 Klein Corp. can issue $1,000 par value bond that pays $100 per year in interest at a  price of $980. The bond will have a 5-year life. The firm is in a 35% tax bracket. What is the after-tax  cost of debt?  1)  9.14% 2)  9.03% 3)  5.87% 4)  6.8% Question 4 Firm X has a tax rate of 30%. The price of its new preferred stock is $63 and its 
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This note was uploaded on 01/05/2012 for the course 101 melissa jo taught by Professor Acc101 during the Spring '11 term at Aarhus Universitet.

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FINC 350 HOMEWORK WEEK 5 - FINANCE 350 HOMEWORK WEEK 5...

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