Solution-Compute Rotermagic Weighted Average Cost of Capital

Compute Rotermagic Weighted Average Cost of Capital

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Reference no: EM132807068

Question - Rotermagic Company supplies helicopters to corporate clients. Rotermagic has two sources of funds: long term debt with a market and book value of $32 million issued at an interest rate of 10%, and equity capital that has a market value of $18 million (book value of $8 million). The cost of equity capital for Rotermagic is 15%, and its tax rate is 30%. Rotermagic has profit centers in four divisions that operate autonomously. The company's results for 2020 are as follows:

	Operating income	Assets	Current liabilities
Miami	$1,750,000	$11,500,000	$2,500,000
Indianapolis	2,400,000	9,000,000	3,500,000
Dallas	4,675,000	27,500,000	9,500,000
San Diego	4,200,000	25,000,000	8,000,000

Required - Compute Rotermagic's Weighted Average Cost of Capital.

A .0480

B .0800

C .0912

D .0988

Reference no: EM132807068

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Compute Rotermagic Weighted Average Cost of Capital : The cost of equity capital for Rotermagic is 15%, and its tax rate is 30%. Compute Rotermagic's Weighted Average Cost of Capital

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Compute Rotermagic Weighted Average Cost of Capital

Reference no: EM132807068

Reference no: EM132807068

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