c. 392% higher expected return. . 363% higher expected return. Oe.365% lower exp

Question

c. 392% higher expected return. . 363% higher expected return. Oe.365% lower expected return. QUESTION 8 Group's cost of retained not be issuing any new stock and the marginal tax rate is 35% what earnings is g% cost of preferred stock is 41%and its cost ofdebt is 10%. The optimal capital structure is 35% common stock35% preferred stock and 30% is the weighted average cost of capital for American International Group? the b. 20.42% c. 20.50% d. 19.45% e. 18.09% QUESTION 9 s.The beta of Citadelf IncMck is lfo, whereas risk free rate of retam is 450% lfthe expected maket portfolio retum is 11%,then what is the expected return on Citadel rbas donthe CAPM? b.1520% c, 13.71% 14.90% e. 1336% QUESTION 10 10. The before-tas cost of debe is the affer-tax cost of debe 2 3

Explanation / Answer

Weighted Average Cost of Capital = Weight of Debt * Cost of Debt + Weight of Equity * Cost of Equity + Weight of Preferred Stock* Cost of Preferred Stock

= 10% * ( 1-35% ) * 30% + 9% * 35% + 41% * 35%

= 19.45%

Hence the correct answer is d.19.45%

9.

expected return = Risk Free Rate + ( Market Return - Risk Free Rate) * Beta

= 4.50% + (11% -4.50%) * 1.60

= 14.90%

Hence the correct answer is d. 14.90%

10 The correct answer is b. higher than

Note : After Tax Cost of Debt = Before Tax Cost of Debt * ( 1- Tax Rate)

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