Consultant to help determine their cost of capital

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Reference no: EM132022347

1. Berkshire Hathaway's target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.75%, the cost of preferred is 7.50%, and the cost of common using reinvested earnings is 12.75%. The firm will not be issuing any new stock. You were hired as a consultant to help determine their cost of capital. What is the firm's WACC?

A. 9.26%

B. 9.56%

C. 9.78%

D. 9.83%

2. The capital intensity ratio is generally defined as follows:

A. The ratio of sales to current assets.

B. The ratio of current assets to sales.

C. The percentage of liabilities that increase spontaneously as a percentage of sales.

D. The amount of assets required per dollar of sales, or A0*/S0.

Reference no: EM132022347

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