Explain weighted average cost of capital

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Reference no: EM131491547

Question: 1. Weighted Average Cost of Capital (WACC)

a. What is the after tax cost of debt if the YTM on Company A's debt is 9.8% and they are in the 40% tax bracket? Show formula and calculations.

b. What is the cost of Retained earnings (Equity) given D0 = 1.75, a growth rate of 4% and a current stock price of $35.00? Show formula and calculations.

c. What is the cost of preferred stock if the current preferred dividend is $2.00, and the current price of the preferred stock is $75.00? Assume the same tax rate as given in 1a. Show formula and calculations. Do not include the DRD in your answer.

d. What is the Weighted Average Cost of Capital if Company A is 40% debt, 20% preferred stock, and 40% equity? Show formula and calculations.

2. Capital Asset Pricing Model (CAPM)

a. What is the required return for a stock given that the risk-free rate is 7%, the Return on the Market is 12%, and the Beta of the stock is 1.5?

Reference no: EM131491547

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