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What would be the weighted average cost of capital

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Question - Consider the following balance sheet of a publicly held company:

Cash $760,000

Long Term Debt $7,633,500

Receivables $1,250,000

Common Stocks $14,176,500

Inventories $2,225,000

Net Equipment $17,575,000

It is estimated that the yield to maturity on bonds are 9%. The company faces a marginal tax rate of 34%. Assume that stock price of this company rises such that it would sell at 1.35 times its book value (amount in the balance sheet) causing its cost of equity to move to 11.5%.

What would be the weighted average cost of capital for this firm?

Reference no: EM132997937

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