Health Services Corporation (HSC) is capitalized with 10 million dollars in debt at 7% and an additional 15 million in Equity for which investors expect a 20% rate of return. If the company’s tax rate is 40%, what is HSC’s weighted average cost of capital?
Premier Care Corporation (PCC) has long term debt at 5% in the amount of $20 million. Equity totals $30 million. PCC’s marginal tax rate is 40%, and the commonly used beta for the industry is 1.2 while government securities are paying 2%. The market returns 9% on average. What is XYZ’s weighted average cost of capital using the Capital Asset Pricing Method?
A given firm’s beta is .7 (a little on the safe side); risk free rates are 2%; and the market, in general, returns 8%. The company has $20 million in debt and $15 million in equity where the interest rate on the debt is 7% and tax rate is 35%. Using the Capital Asset Pricing Method for determining the cost of equity, what is the firm’s weighted average cost of capital?