Component cost of debt for use in wacc calculation

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Reference no: EM132044244

1. Rainbow in the Dark Manufacturing has a target debt-equity ratio of 0.70. Its cost of equity is 13.0 percent, and its cost of debt is 6.0 percent. Required: If the tax rate is 35 percent, what is the company’s WACC?

3.82% 7.09% 10.90% 9.25% 4.59%

2. To help finance a major expansion, Top Fashion Company sold a noncallable bond several years ago that now has 20 years to maturity. This bond has a 8.0% annual coupon, paid semiannually, sells at a price of $1,050, and has a par value of $1,000. If the firm's tax rate is 40%, what is the component cost of debt for use in the WACC calculation?

a) 4.51%

b) 4.68%

c) 3.95%

d) 5.24%

e) 4.80%

Reference no: EM132044244

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