You were hired as a consultant to locke company and

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Intermediate Financial Management
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Chapter 2 / Exercise 020
Intermediate Financial Management
Brigham/Daves
Expert Verified
20. You were hired as a consultant to Locke Company, and you were provided with the following data: Target capital structure: 40% debt, 10% preferred, and 50% common equity. The interest rate on new debt is 7.5%, the yield on the preferred is 7.0%, the cost of retained earnings is 11.50%, and the tax rate is 40%. The firm will not be issuing any new stock. What is the firm’s WACC? (5 points)a.8.25%b.8.38%c.8.49%d.8.61%
21.Which of the following is not a capital component when calculating the weighted average cost of capital (WACC)?
22.Which of the following statements is CORRECT?
23.Which of the following statements is CORRECT?
24.Which of the following statements about the cost of capital is CORRECT?a.A change in a company’s target capital structure cannot affect its WACC.b.WACC calculations should be based on the before-tax costs of all the individual capital components.c.If a company’s tax rate increases, then, all else equal, its weighted average cost of capital will decrease.d.Flotation costs associated with issuing new common stock normally lead to a decrease in the WACC.
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Intermediate Financial Management
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Chapter 2 / Exercise 020
Intermediate Financial Management
Brigham/Daves
Expert Verified
25.Which of the following statements is CORRECT?

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