# Question

The balance sheets for the Genatron Manufacturing Corporation for the years 2013 and 2014 are listed in the text.

a. Calculate the weighted average cost of capital based on book value weights. Assume an after-tax cost of new debt of 8.63 percent and a cost of common equity of 16.5 percent.

b. The current market value of Genatron’s long-term debt is $350,000. The common stock price is $20 per share and there are 30,000 shares outstanding. Calculate the WACC using market value weights and the component capital costs in Part a.

c. Recalculate the WACC based on both book value and market value weights assuming that the before-tax cost of debt will be 18 percent, the company is in the 40 percent income tax bracket, and the after-tax cost of common equity capital is 21 percent.

a. Calculate the weighted average cost of capital based on book value weights. Assume an after-tax cost of new debt of 8.63 percent and a cost of common equity of 16.5 percent.

b. The current market value of Genatron’s long-term debt is $350,000. The common stock price is $20 per share and there are 30,000 shares outstanding. Calculate the WACC using market value weights and the component capital costs in Part a.

c. Recalculate the WACC based on both book value and market value weights assuming that the before-tax cost of debt will be 18 percent, the company is in the 40 percent income tax bracket, and the after-tax cost of common equity capital is 21 percent.

## Answer to relevant Questions

The U.S. financial system is comprised of: (1) Policy makers, (2) A Monetary system, (3) Financial institutions, and (4) Financial markets. Indicate which of these components is associated with each of the following ...Identify and briefly describe several reasons for studying finance. We are faced with ethics decisions involving money almost every day. For example, we all probably have seen money in the form of coin or currency lying on the ground or floor somewhere. We also may have at some time ...The Basic Biotech Corporation wants to determine its weighted average cost of capital. Its target capital structure weights are 50 percent long-term debt and 50 percent common equity. The before-tax cost of debt is estimated ...Income statements for Mount Lewis Copy Centers for 2013 and 2014 appear below (in the text). a. Compute and interpret the degree of operating leverage, degree of financial leverage, and degree of combined leverage in 2013. ...Post your question

0