Financial Management

Financial Management

Answer (9-5):

The before tax cost of debt is 13 percent.

The after tax cost of debt is 7.8 percent

(Computation: (1-0.4)x13%)

Answer (9-15):

Cost of corporation's retained earnings is 11.69.

[E=1+g/(ke-g) where E= Market Value (65), g=Growth Rate (10%), ke=Cost of retained earnings]

Cost of corporation's retained earnings is 11.67.

[E=1+g/(ke-g) where E= Market Value (65.8571), g=Growth Rate (10%), ke=Cost of retained earnings]

Yes, the new shareholder being an investee in a company new shareholder should expect higher rate of return then existing equity holders.

Answer (9-25):

(50% *13%)+(0.1*12%)+(0.4*11*0.6) = 9.14 %

(50% *13%)+(0.1*12%)+(0.4*13*0.6) = 10.82 %

(50% *13%)+(0.1*12%)+(0.4*15*0.6) = 11.3 %

Answer (3):

Weight refers to the ...