What is weighted average cost of capital

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1. Kelso's has a debt-equity of 0.4, and tax rate of 35 percent. the firm does not issue preferred stock. The cost of equity is 14.5 percent and the before- tax cost of debt is 4.8 percent. What is the weighted average cost of capital.

a. 10.46 percent

b. 10.67 percent

c..10.86 percent

d. 11.38 percent

e. 11.25 percent

2. Crissie just won the lottery , and she must choose between three award options. She can elect to receive a lump sum today $61 million, to receive 10 end-of-year payments of $9.5 million, or to receive 30 end-of-year payments of $5.5 million.

a. If she thinks she can earn 7% annually, which should she choose?

b. If she thinks she can earn 8% annually, which should she choose?

c. If she thinks she can earn 9% annually, which should she choose?

d. Explain how interest rates influence the optimal choice.

Reference no: EM131871645

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