Solution-After-tax weighted average cost of capital

After-tax weighted average cost of capital

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Droz's Hiking Gear, Inc., has found that its common equity capital shares have a beta equal to 1.5 while the risk-free return is 8 percent and the expected return on the market is 14 percent. It has 7-year maturity bonds outstanding with a price of $767.03 that have a coupon rate of 7 percent. If the firm is financed with $120,000,000 of common shares (market value) and $80,000,000 of debt, then what is the after-tax weighted average cost of capital for Droz's if it is subject to a 35 percent marginal tax rate?

Reference no: EM131317470

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After-tax weighted average cost of capital

Reference no: EM131317470

Reference no: EM131317470

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