Question: In the spring of last year Tempe Steel learned that
In the spring of last year, Tempe Steel learned that the firm would need to reevaluate the company’s weighted average cost of capital following a significant issue of debt. The firm now has financed 45 percent of its assets using debt and 55 percent using equity. Calculate the firm’s weighted average cost of capital where the firm’s borrowing rate on debt is 8 percent, it faces a 40 percent tax rate, and the common stockholders require a 20 percent rate of return.
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