Part A
If D represents debt, E represents equity, and the firm has no preferred stock, then the capital structure weight of equity is computed as:
A. E/D
B. E/(D+E)
C. E/(D+E+P)
D. E/ (E+P)
Part B
If a firm’s before-tax cost of debt is 10% and the firm has a 21% marginal tax rate, what is the firm’s after-tax cost of debt?
A. 6.5%
B. 3.5%
C. 10.0%
D. 7.9%
Part C
A company has preferred stock that can be sold for $100 per share. The preferred stock pays a quarterly dividend $1.5. Therefore, the cost of preferred stock is:
A. 4.0%
B. 5.0%
C. 6.0%
D. 10.0%
Part D
Suppose your company has an equity beta of 0.5 and the current risk-free rate is 3.0%. If the expected market risk premium is 8.6%, what is your cost of equity capital?
A. 7.3%
B. 8.6%
C. 11.1%
D. 10.3%.