NechMenTin, Inc., has given the following information to you. They want you to calculate their weighted average cost of capital. The company has always followed their ideal capital structure which the management insists is 40% debt and 60% equity capital. The company can issue bonds for 9% coupon rate. The interest is paid semi-annually. The bonds have 22 years to maturity. The bonds can be issued to net the company $835.42 with a maturity value of $1,000. The company's marginal tax rate is 40%. For cost of equity, the company uses the CAPM based on SML. The risk free rate in the market is 8% and the market rate of return is 14%. The company has a beta of 1.1.
What is NechMenTin's before tax cost of debt?
What is NechMenTin's after-tax cost of debt?
What is the company's cost of equity capital using the CAPM?
A. Roul, a new investment banker contends that the company's cost of capital is 8.6%. Based on the answers from the three questions above, what is the actual weighted average cost of capital for NechMenTin, Inc?
Answer A. 11% A. 6.6%... View the full answer