An Australian company has total assets of $150 million and debt of $30 million. The firm’s before-tax cost of debt is 5% and its cost of equity is 12%. If the corporate tax rate is 30%, calculate the firm’s cost of capital and the appropriateness of its use as a discount rate in capital budgeting.

Answer rating: 100% (QA)

Cost of Capital Debt x 1 Tax Rate x Beforetax Cost of Debt Equity x Cost of Equity Cost of Capital 3... View the full answer