In the financial report for September 2023, HW Company disclosed an annual interest expense of $1.80...

 

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In the financial report for September 2023, HW Company disclosed an annual interest expense of $1.80 million on its average debt balance of $20 million. The market value of equity is reported at $30 million. The company operates in a market with a risk-free rate of 5% and a risk premium of 6%. The company's stock beta and tax rate are 1.2 and 25%, respectively. Required: (a) Compute the cost of debt after tax. (1 pt.) (b) Determine the cost of equity using the CAPM. (1 pt.) (c) Calculate the weighted average cost of capital. (2 pts.) In the financial report for September 2023, HW Company disclosed an annual interest expense of $1.80 million on its average debt balance of $20 million. The market value of equity is reported at $30 million. The company operates in a market with a risk-free rate of 5% and a risk premium of 6%. The company's stock beta and tax rate are 1.2 and 25%, respectively. Required: (a) Compute the cost of debt after tax. (1 pt.) (b) Determine the cost of equity using the CAPM. (1 pt.) (c) Calculate the weighted average cost of capital. (2 pts.) In the financial report for September 2023, HW Company disclosed an annual interest expense of $1.80 million on its average debt balance of $20 million. The market value of equity is reported at $30 million. The company operates in a market with a risk-free rate of 5% and a risk premium of 6%. The company's stock beta and tax rate are 1.2 and 25%, respectively. Required: (a) Compute the cost of debt after tax. (1 pt.) (b) Determine the cost of equity using the CAPM. (1 pt.) (c) Calculate the weighted average cost of capital. (2 pts.) In the financial report for September 2023, HW Company disclosed an annual interest expense of $1.80 million on its average debt balance of $20 million. The market value of equity is reported at $30 million. The company operates in a market with a risk-free rate of 5% and a risk premium of 6%. The company's stock beta and tax rate are 1.2 and 25%, respectively. Required: (a) Compute the cost of debt after tax. (1 pt.) (b) Determine the cost of equity using the CAPM. (1 pt.) (c) Calculate the weighted average cost of capital. (2 pts.)