Solve the following Multiple choice questions. 

Zonk’s Capital Structure:
Debt	$8,000,000
Preferred Stock	$2,000,000
Common Equity	$10,000,000
Total Assets	$20,000,000
Additional Information:
Pre-tax borrowing rate	6%
Preferred stock price per share	$50
Annual preferred dividend per share	$4
Common equity beta	1.2
The effective income tax rate	20%

What is Zonk’s after-tax cost of debt?

5.6%

6.4%

7.2%

4.8%

What is Zonk’s cost of preferred stock?

7.6%

8.0%

6.0%

5.4%

What is Zonk’s cost of common equity? Assume that the riskless rate is 3% and the expected return on the market is 10%.

12.6%

11.4%

10.2%

8.8%

What is Zonk’s weighted average cost of capital?

9.68%

8.42%

7.36%

10.14%

Answer rating: 100% (QA)

1Zonks aftertax cost of debt After tax cost of debt Pr... View the full answer