Cost of capital for the valuation of the collinsville plant

Assignment Help Financial Management

Reference no: EM13805494

The average unlevered beta of publicly traded Sodium Chlorate businesses is 0.94. Assume zero debt betas. The target capital structure that is appropriate for Collinsville plant is 35% debt and 65% equity. Assume a risk-free rate of 9.5% and market risk premium of 7.5%. The firm could issue debt for this investment at a cost of 11.25%. Corporate tax rate is 48%.

What is the appropriate cost of capital for the valuation of the Collinsville plant? Write your answer in percent but without the percent sign and limit it to two decimal points

Reference no: EM13805494

Questions Cloud

Drawback of switching from a partnership to corporate form : One drawback of switching from a partnership to the corporate form of organization is the following:

Net present value is generally considered to be method : Given that the net present value (NPV) is generally considered to be the best method of analysis, why could you still use the other methods? You need to use other methods because the net present value method is unreliable when a project has unconvent..

Calculate the selling corporations tax bill : Last year the selling corporation had earnings before interest and taxes (operating income) equal to $1 million. it paid $200,000 in dividends to its stockholders and $100,000 in interest to its creditors. During the year, the company also repaid a b..

Time series plot-what type of pattern exists in the data : The Seneca Children’s Fund (SCF) is a local charity that runs a summer camp for disadvantaged children. The fund’s board of directors has been working very hard over recent years to decrease the amount of overhead expenses, a major factor in how char..

Cost of capital for the valuation of the collinsville plant : The average unlevered beta of publicly traded Sodium Chlorate businesses is 0.94. Assume zero debt betas. The target capital structure that is appropriate for Collinsville plant is 35% debt and 65% equity. What is the appropriate cost of capital for ..

Under the payback method-cash flows for two alternatives : Assume a $6,500 investment and the following cash flows for two alternatives. Under the payback method, which of the following would be concluded?

Statements about the payback method : Which of the following statements about the "payback method" is true?

As the cost of capital increases : Company a charges $40.00 per day company b charges $60.00 plus $20.00 per day for what number of days is the cost the same? As the cost of capital increases,

After-tax cost of debt for a new issue of bonds : The coupon rate on an issue of debt is 8%. The yield to maturity on this issue is 10%. The corporate tax rate is 31%. What would be the approximate after-tax cost of debt for a new issue of bonds?

User Account

All Pages