Question

# Please show all work in order to get credit on an excel file. If you provide...

Please show all work in order to get credit on an excel file. If you provide only the answers without showing your work, I will not be able to provide any credit if your answer is wrong.

A company is planning a 50 mio expansion. The expansion is to be financed by selling 20 mio in new debt and 30 mio in new common stock. The equity investors are expecting a 14% return. Before-tax required return on debt is 9%. If the company is in the 40% tax bracket, the company’s marginal cost of capital is:

Using Excel to Calculate

 A B 1 Debt 20 million 2 Equity 30 million 3 Cost of Debt 9.00% 4 Cost of Equity 14% 5 Tax Rate 40.00% Cost of Capital 10.56% (Excel Formula=B2/(B1+B2)*B4+B1/(B1+B2)*B3*(1-B5)

Alternative Method
Cost of Capital =Equity/(Equity+Debt)*Cost fo equity+Debt/(Equity+Debt)*Cost of Debt*(1-Tax Rate)
=30/(30+20)*14%+20/(30+20)*9%*(1-40%) = 10.56%

#### Earn Coins

Coins can be redeemed for fabulous gifts.