Because New Market Products (NMP) markets consumer staples, it is able to make use of considerable debt
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Because New Market Products (NMP) markets consumer staples, it is able to make use of considerable debt in its capital structure; specifically, 90 percent of the company’s total assets of $450,000,000 are financed with debt capital. Its cost of debt is 8 percent before taxes, and its cost of equity capital is 12 percent. NMP achieved a pretax income of $5.1 million in 2006 and had a tax rate of 40 percent. What was NMP’s residual income?
Cost Of DebtThe cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... 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...
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Related Book For 
Equity Asset Valuation
ISBN: 978-0470571439
2nd Edition
Authors: Jerald E. Pinto, Elaine Henry, Thomas R. Robinson, John D. Stowe, Abby Cohen
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