A company consists of 40% debt and 60% equity. The cost of debt is 7% and...

 

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A company consists of 40% debt and 60% equity. The cost of debt is 7% and the cost of equity is 14%. What is the pre-tax cost of capital for this company? (3 Points) Problem 4: The total market value of the common stock of Company A is $8 million, and the total value of its debt is $2 million. The treasurer estimates that the beta of the stock is currently 1.15 and that the market risk premium is 6.8%. The Treasury bill rate is 2%. Assume for simplicity that Company A debt is risk-free. The Company's tax rate is 35%. a) What is the cost of capital for Company A, if we ignore taxes? (3 Points) b) What is the WACC for Company A? (3 Points) A company consists of 40% debt and 60% equity. The cost of debt is 7% and the cost of equity is 14%. What is the pre-tax cost of capital for this company? (3 Points) Problem 4: The total market value of the common stock of Company A is $8 million, and the total value of its debt is $2 million. The treasurer estimates that the beta of the stock is currently 1.15 and that the market risk premium is 6.8%. The Treasury bill rate is 2%. Assume for simplicity that Company A debt is risk-free. The Company's tax rate is 35%. a) What is the cost of capital for Company A, if we ignore taxes? (3 Points) b) What is the WACC for Company A? (3 Points)