Company after-tax weighted average cost of capital

Assignment Help Financial Management

Reference no: EM131352843

1. CCC Manufacturing Inc. is a very large and very profitable company. As such, the company is in the 35 percent marginal tax bracket for Federal income taxes. Ignore state and local income taxes in this problem. The company’s capital structure includes both bonds (debt) and common stock (equity). This year the company paid $1,000,000 in interest on their debt. The company also paid $2,000,000 in dividends to their common stockholders. What is the true, AFTER-TAX cost (to CCC Mfg. Inc.) of the $1,000,000 interest on their debt?

Zero (because interest expense is deductible)

$350,000

$650,000

$1,000,000

2. CCC Manufacturing Inc. is a very large and very profitable company. As such, the company is in the 35 percent marginal tax bracket for Federal income taxes. Ignore state and local income taxes in this problem. The company’s capital structure includes both bonds (debt) and common stock (equity). This year the company paid $1,000,000 in interest on their debt. The company also paid $2,000,000 in dividends to their common stockholders. What is the true, AFTER-TAX cost (to CCC Mfg. Inc.) of the $2,000,000 dividends paid to shareholders?

Zero (because dividends paid are deductible)

$700,000

$1,300,000

$2,000,000

3. Suppose that Goode Company has a capital structure of 80% equity and 20% debt. Its BEFORE-TAX cost of debt is 9%. Its cost of equity is 15%. Assume the appropriate weighted average tax rate is 30%. What is Goode Company’s AFTER-TAX WACC (Weighted Average Cost of Capital)?

9.66%

12.00%

12.54%

13.26%

13.80%

Reference no: EM131352843

Questions Cloud

Design a five-day webquest that could be used to teach : Design a five-day WebQuest that could be used to teach and assess one particular concept from the social studies strand you selected. Account for the following lesson plan components: Required resources and materials.

Discuss about the memory training in older adults : One of the cognitive changes older adults worry about and fear most is memory loss. Some older adults may assume that any memory loss means that they are developing dementia. However, some memory loss that occurs with aging is normal and can be ma..

Essay on the topic -academic plagiarism : Essay format of 1500 words on the topic "Academic - Plagiarism, types of Plagiarism and how to avoid it".

How do you define a school and what constitutes a community : That is a family? How do you define a school? What constitutes a community? At first glance, these might seem like simple questions with straightforward answers.

Company after-tax weighted average cost of capital : Suppose that Goode Company has a capital structure of 80% equity and 20% debt. Its BEFORE-TAX cost of debt is 9%. Its cost of equity is 15%. Assume the appropriate weighted average tax rate is 30%. What is Goode Company’s AFTER-TAX WACC (Weighted Ave..

What is the corresponding term usually employed by physicist : Chemists usually speak of valence electrons. What is the corresponding term usually employed by physicists?

What is the word length required for unambiguous encoding : What is the word length required for unambiguous encoding?- Find the binary code for the sequence abacabb.- Decode the code you obtained to verify that your encoding was correct.

Calculate the changes in the financial statements : BUS103 Accounting for Managers Team Assignment. Required: In relation to the financial statements of Stratum Limited given below answer the following questions. Calculate the changes in the financial statements from 2017 to 2016 in both dollar amount..

What delievered price would salesperson for supplier : Assume that a product sells for $100 per ton and that Pittsburg is the basing-point city for calculating transporation charges. Shipping from Pittsburg to a potential customer in Cincinati cost $10 per ton. What delievered price would a salesperon fo..

User Account

All Pages