Busıness Fınance Iı Deneme Sınavı Sorusu #1030535
A & B Corp. has the following optimal capital structure:
- Long-term Debt 20%
- Preferred Stocks 10%
- Common Equity 40%
The interest rate on the company’s long-term borrowings is 7%. Preferred stockholders require 13% return on their investments and common shareholders are paid 15% on equity capital. The company has a tax rate of 40%. What is the WACC for A & B Corp.?
|
4.24% |
|
4.60% |
|
5.46% |
|
6.30% |
|
8.14% |
The cost of each capital component is weighed at the proportions in the capital structure to quantify the firm’s WACC.
, where wD is the weight of debt financing in the capital structure, kD is the cost component of debt funds, T is the tax rate, accordingly wPS is the weight of preferred stocks, kPS is its cost component, wCE is the weight of common equity and kCE is the cost of equity capital. Therefore;
WACC=0.20*0.07*(1-0.40)+0.10*0.13+0.40*0.15=0.0814
As it can be seen from the above calculation the WACC for A & B is 8.14%. The correct answer is E.
Yorumlar
- 0 Yorum