The firms tax rate is 34 the firms pre tax cost of

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International Financial Management
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Chapter 21 / Exercise 6
International Financial Management
Madura
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11. The firm's tax rate is 34%. The firm's pre-tax cost of debt is 8%; the firm's debt-to-equity ratio is 3; the risk-free rate is 3%; the beta of the firm's common stock is 1.5; the market risk premium is 9%. What is the firm's cost of equity capital? A. 33.33%B. 10.85%C. 13.12%D.16.5%E. None of the aboverequity= 3% + 1.5 ×9% = 16.5%
12. The firm's tax rate is 34%. The firm's pre-tax cost of debt is 8%; the firm's debt-to-equity ratio is 3; the risk-free rate is 3%; the beta of the firm's common stock is 1.5; the market risk premium is 9%. What is the required return on assets?
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International Financial Management
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Chapter 21 / Exercise 6
International Financial Management
Madura
Expert Verified
Chapter 18 International Capital BudgetingFor the next two questions consider a project with the following dataThe 5-year project requires equipment that costs $100,000. If undertaken, the shareholders will contribute $20,000 cash and borrow $80,000 at 6% with an interest-only loan with a maturity of 5 years and annual interest payments. The equipment will be depreciated straight-line to zero over the 5-year life of the project. There will be a pre-tax salvage value of $5,000. There are no other start-up costs at year 0. During years 1 through 5, the firm will sell 25,000 units of product at $5; variable costs are $3; there are no fixed costs.13. What is the NPV of the project using the WACC methodology?
Chapter 18 International Capital Budgeting14. What is the NPV of the project using the APV methodology?
For the next 3 questions consider a project with the following dataThe 5-year project requires equipment that costs $100,000. If undertaken, the shareholders will contribute $25,000 cash and borrow $75,000 with an interest-only loan with a maturity of 5 years and annual interest payments. The equipment will be depreciated straight-line to zero over the 5-year life of the project. There will be a pre-tax salvage value of $5,000. There are no other start-up costs at year 0. During years 1 through 5, the firm will sell 25,000 units of product at $5; variable costs are $3; there are no fixed costs.18-42
Chapter 18 International Capital Budgeting

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