Scenario Company ABC wants to invest in a Swedish manufacturing company that has an optimal debt ratio of 60 Company ABC 's cost of equity capital is 16 and its before tax borrowing rate is 12 3 As the CFO of ABC, you have to justify the profitability of this investment Your Task Given a marginal t...

1 Computation of the weighted average cost of capital WACC Formula ...

Scenario: Company ABC wants to invest in a Swedish manufacturing company that has an optimal debt ratio

Question:

Scenario: Company ABC wants to invest in a Swedish manufacturing company that has an optimal debt ratio of 60%. Company ABC's capital is 16% and its before-tax borrowing rate is 12.3%. As the CFO of ABC, you have to justify the profitability of this investment.
Your Task: Given a marginal tax rate of 45%, calculate:
1. The weighted average (WACC)
2. The for an equivalent all-equity financed firm
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...