FIN 534 Chp 10 End of Chapter Questions with Answers -...

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Answers and Solutions: 10 - 184 a. 1. What sources of capital should be included when you estimate Harry Davis'weightedaverage cost of capital (WACC)?
a. 2. Should the component costs be figured on a before-tax or an after-tax basis?
a. 3. Should the costs be historical (embedded) costs or new (marginal) costs?
Answers and Solutions: 10 - 185 b. What is the market interest rate on Harry Davis' debt and its component cost ofdebt?
Since interest is tax deductible, Uncle Sam, in effect, pays part of the cost, and Harry Davis'relevant component cost of debt is the after-tax cost:rd(1 - T) = 10.0%(1 - 0.40) = 10.0%(0.60) = 6.0%.

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Term
Spring
Professor
NALLA
Tags
Cost Of Capital, Net Present Value, Internal rate of return

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