Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. abc food, inc., has a weighted average cost of cap

ABC Food, Inc., has a weighted average cost of capital of 10.2 percent. The companys...

90.2K

Verified Solution

Question

Finance

ABC Food, Inc., has a weighted average cost of capital of 10.2 percent. The companys cost of equity is 15 percent, and its pre-tax cost of debt is 6.9 percent. The tax rate is 35 percent.

  1. What is the companys target debtequity ratio?

(15 marks)

  1. Why do we use an after-tax figure for cost of debt but not for cost of equity?

(3 marks)

PCW, Inc., is all-equity-financed. The expected rate of return on the companys shares is 20 percent.

  1. What is the opportunity cost of capital for an average-risk PCW investment?

(5 marks)

  1. Suppose the company issues debt, repurchases shares, and moves to a 50 percent debt-to-value ratio (D/V = .50). What will be the companys weighted-average cost of capital at the new capital structure? The borrowing rate is 5 percent and the tax rate is 35 percent. (D+E=V)

(10 marks)

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

Why is the Leibovitvz’s L-15 medium is important for adherent cell culture? Identify five key components...

Biology
Q

match each type of macromolecule to its chemical description 1) Carbohydrate a) contain a high ratio of...

Medical Sciences
Q

Which is NOT a class in the Phylum Annelida A Class Oligochaeta B Class Polychaeta...

Biology
Q

One mole of an ideal gas having initial volume V pressure 2P and temperature T...

Physics
Q

he speed of a projectile at its maximum height 1 is 2 times of its...

Physics
Q

6 n f x 5 dz 5 Question Help OVideo Message instruct Calculator

Calculus
Q

Suppose you roll two standard number cubes.What is the theoretical probability of getting a sum...

Algebra
Q

please answer question 3 and 4 only !!! ...

Accounting
Q

during 2025. The company received cash for 20% of the sales and notes receivable for...

Accounting
Q

Hushovd Iron Works has collected the following data for its Thunderbolt line of products: Direct...

Accounting
Q

i need 40 (forty) different journal entry for a small company making gift cards, any...

Accounting
Q

Stock Investments. During 2016, Stockman Company began investing in the common stock of other companies....

Accounting