Fulton has $45 million in equity, $30 million in debt and $8 million in preferre
ID: 2745055 • Letter: F
Question
Fulton has $45 million in equity, $30 million in debt and $8 million in preferred stock. Component costs of capital are 9%, 8%, and 7%, respectively. If Fulton’s tax rate is 35%, what is its WACC?
A. 3.47%
B. 5.68%
C. 7.43%
D. 9.82%
If Takelmer’s overall WACC is 12% and it adds three percentage points for higher-risk projects and subtracts 4 percentage points for lower-risk projects, which projects should it accept?
A. ADF
B. ABEG
C. CDGE
D. ACF
An all-equity firm is considering a project that is only one-and-one-quarter times as risky as average for the firm. If the annual rate on 3-month T-bills is 3%, the MRP is 8%, and the firm’s tax rate is 40%, what is the WACC for this firm?
A. 10.00%
B. 9.25%
C. 6.43%
D. 13.00%
A firm finances with 40% debt and 60% equity. It’s tax rate is 35% and its after-tax cost of debt is 4%. The firm is considering a project with risk that is only 70% as risky as average for the firm. If the annual rate on 3-month T-bills is 3%, the expected return on the market is 8%, what is the WACC for this firm?
A. 6.50%
B. 4.00%
C. 5.50%
D. 4.94%
Explanation / Answer
1)
The correct asnwer is option C.
Note: Please post one question at a time.
Amount($) Cost of Capital Before tax Cost of Capital After tax Weight weight * Cost of capital after tax Value of Equity 45 9% 9% 54.22% 4.88% Value of Debt 30 8% 5.20% 36.14% 1.88% Value of Preference Shares 8 7% 7% 9.64% 0.67% 83 WACC 7.43%Related Questions
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