Two bonds with different after tax cost of debts

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Reference no: EM132036527

1. Company P owns 80% of the 10,000 outstanding common stock of Company S. If Company S issues 2,500 added shares of common stock, and Company P purchases some of the newly issued shares, which of the following statements is true?

a. Other than recording the purchase, there is no adjustment to the controlling interest if the parent purchases 80% of the shares issued.

b. There is a new excess of cost over book value or excess of book value over cost if the parent purchases 80% of the newly issued shares.

c. Other than recording the purchase, there is no adjustment to the controlling interest if the parent purchases all the shares issued.

d. Other than recording the purchase, there is no adjustment to the controlling interest if the parent does not purchase any of the shares issued.

2. The formula for WACC = (weight of equity * cost of equity) + (weight of debt * after tax cost of debt).

If a company were to have two bonds with different after tax cost of debts, how will you calculate the WACC for that company?

Explain in 2-3 sentences.

Reference no: EM132036527

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