Question

What does the cost of capital represent?

a. The weighted average of the cost of borrowing on a long and
short-term basis

b. The weighted average of fixed and variable costs

c. The weighted average of debt and equity fiancing

d. The weighted average of the incremental cash inflows and
outflows

Answer #1

What does the cost of capital represent?

**C. The weighted average of debt and equity
financing**

**Explanantion**

The cost of capital is the cost of a company's funds both debt & equity, or from invetor's perspective "the required rate of return" on a portfolio company's existing securities. It is generall used to evaluate new projects of company.

a. The weighted average of the cost of borrowing on a long and short - term basis.

This does not include equity so it does not represents cost of capital.

b. The weighted average of fixed and variable cost.

Fixed and variable does not represnts cost of equity. Cost of debt & equity fund represents cost of capital

d. The weighted average of the incremental cash inflows and outflows.

Cash inflows and outflows does not represent cost of capital. Cost of debt & equity funds represnts cost of capital.

Weighted Average Cost of
Capital (WACC)
1
In its 2017 10-k
Black Diamond Equipment reported the following information about
its capital structure. The firm had long term public debt
outstanding of 500 million dollars and short term debt of 31.5
million dollars. It's average cost of debt was 8.25%. The firm had
10 million public shares outstanding and each share was currently
trading for $84.75. It's cost of equity was 15.6%. The firms
current marginal tax rate was 35%. What...

Solve for the weighted average cost of capital.
13.60% = cost of equity capital for a leveraged firm
3/4 = debt-to-total-market-value ratio
8.0% = before-tax borrowing cost
21.0% = marginal corporate income tax rate

What is a weighted average cost of capital (WACC), and what is a
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for a project or the WACC as its basis for evaluating the
project?Explain your answer.
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Define operating leverage and financial leverage. How does each
relate to risk?...

The weighted average cost of capital for a firm:
A. remains constant when the firm’s capital structure
changes.
B. is unaffected when there is any change in the corporate tax
rate.
C. is equivalent to the after-tax cost of the firm’s outstanding
debt.
D. is a weighted average between the cost of equity and the
(after-tax) cost of debt.

You are asked to calculate the weighted average cost of capital
for Meritel Inc, a telecom firm. The risk free rate is currently
4%, the expected market return is 11%, and Meritel’s beta is 1.8.
They have one piece of long term debt on their balance sheet – a
zero coupon bond maturing in ten years. The $1000 par value bond
currently trades at $558.40 in the market. The tax rate is 35% and
Meritel capital structure is 50% debt...

Use the following information to calculate the firm’s weighted
average cost of capital:
The dividend for preferred shares is $5, and the current price
for preferred stock is $75.
The rate of return on long-term debt is 6%, the rate of return
on short-term debt is 5%, and the marginal tax rate is 35%.
The market risk premium is 5%, the risk-free rate is 3%, and the
firm has a beta of 0.9.
The firm’s capital structure is as follows:...

What is the weighted average cost of capital of a company that
has debt of $8.505 million and equity of $11.143 million? The
average before-tax cost of debt is 7.30% per annum and the average
cost of equity is 10.10% per annum. The company tax rate is 30%.
Please use three methods – a mathematical formula,
SUMPRODUCT function and SUM array function, to compute the weighted
average cost of capital.

Bounds on the Weighted Average Cost of Capital. The firm is
financed by 30% of debt and 70% of equity. The corporate tax rate
is 35%. The firm pays 2% interest rate on its debt to investors.
The risk-free rate in the economy is also 2% and the firm equity
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a) What is the lower bound for the firm’s weighted average cost
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What is the Pall Mall Corp's weighted average cost of capital if
its cost of pre-tax debt is 11% (25 of overall capital structure),
its cost of preferred stock is 9.5%(15% of capital structure) and
its cost of equity is 15.5% (60% of the capital structure)? The
marginal tax rate is 35%
a.12.5 b.13.5 c.12.3% d 11.7

Which of the following statements is correct? The weighted
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increase in the market risk premium is likely to increase the
weighted average cost of capital. The weights of debt and equity
should be based on the balance sheet because this is the most
accurate assessment of the valuation. All of these statements are
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