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Chap 18 #10 The required return on assets is 18%. The firm can borrow at 12.5%; firm's target debt to value ratio is 3/5. The corporate tax rate is

chap 18, #10. pls show all work. pls see attached. thanks

Chap 18 #10 The required return on assets is 18%. The firm can borrow at 12.5%; firm's target debt to value ratio is 3/5. The corporate  tax rate is 34%, and the risk-free rate is 4% and the market risk premium is 9.2 percent. What is the weighted average cost  of capital? The Feedback I was given is: K l  = 23.45% = 18% + 1.5 × (18% − 12.5%) × (1 − .34) weighted average cost of capital = 2/5 × 23.45% + 3/5 × (12.5%) × (1 − .34) = 14.33% And the Ans is: 14.33%. My questions are: where does the 1.5 or 23.45% come from?
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Finance-8208145.doc

Chap 18 #10
The required return on assets is 18%. The firm can borrow at 12.5%; firm's target debt to
value ratio is 3/5. The corporate tax rate is 34%, and the risk-free rate is 4% and the
market...

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