Reference no: EM131078047
Common stock seeling price =book value and firms bond at par required rate of return = 18% on common firms bonds and command a yield to maturity of 7%
36% tax rate
1. What is firms weighted average cost of capital?
2. If the firms stock price rises so that it sells 1.5 times book value, causing the cost of equity to fall to 16% what woudl the firms cost of capital be assuming the cost of debt and tac rate do nto change?
Balance Sheet Data:
Cash 420,000 A/R 5,150,000 Inventory 8,200,000 Net Property, plant equipment $18,519,000 Total Assets 32,289,000
Long Term debt 12,470,000 Common Equity 19,819,000 Total Debt and Equity 32,289,000
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