Determine cost of common stock and after tax cost of debt

Assignment Help Financial Management

Reference no: EM131902635

Price per unit of RMM’s debt is $93.45 and there are 4000 units of debt. The price per unit of common stock is $50 and there are 10,000 units of common stock. The debt has a face value of $100, 10% coupon rate, and 10 years to maturity. The common stock has a standard deviation of return equal to 40% and a correlation coefficient between its return and SP500 return of 0.8. The S&P500 has a return of 12.5% and a standard deviation of return equal to 20%. The T-bill rate is 3.5%. RMM has a tax rate of 30%

(1) Determine the cost of common stock, and the after tax cost of debt.

(2) What is the capital structure of RMM? (How much of the capital is raised by issuing common stock and debt, respectively?)

(3) Determine the weighted average cost of capital.

(4) If the expected return on an RMM’s investment is 10%, is this investment acceptable? Why or why not?

Reference no: EM131902635

Questions Cloud

Inverse supply and demand functions in the market : The following equations represent the inverse supply and demand functions in the market for Good A:

What would have been considered the right outcome : What would have been considered the "right" outcome? What would have been considered "wrong"? Why?

Problem on the honor system activity : This activity is on the honor system (but your participation is graded)!! Trust me! If you do it the way I have it set up, you'll accomplish a LOT

Identify key issues and resources for additional information : Identify key issues and resources for additional information or study. Significance and importance of the topic as well as your interests.

Determine cost of common stock and after tax cost of debt : Determine the cost of common stock, and the after tax cost of debt. Determine the weighted average cost of capital.

What is opportunity cost of making a cake : What is your opportunity cost of making a cake? What is Kelly's opportunity cost of making a cake?

A project history of your recent trillo apparel company : Your final report should include the following sections: Executive Summary and Project Performance and Status Report.

What incentives are included in the plan : You are the director of compensation for a midsized organization. Prepare a PowerPoint presentation that justifies the implementation of a new compensation.

Promotes an isolationist economic policy : Cite and discuss 3 disadvantages to a nation which promotes an isolationist economic policy. That is, how does such a policy cost a nation?

User Account

All Pages