Why must cost be assigned to retained earnings

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Reference no: EM133338952

Questions: Answer the questions accurately and show your computation.

1. Why is the after- tax Cost of debt used rather than the before-tax cost in computing for the WACC?

2. A company has an outstanding 20-year non-callable bonds at 11%, and its tax rate is 30%. Compute the after-tax cost of debt?

3. Why must cost be assigned to retained earnings? Answer it comprehensively.

4. Suppose you are an analyst with the following data: rRF=5.5%, (rM-rRF)=6% and b=0.8. What is the firm's cost of equity using the CPM approach?

5. Suppose interest rate in the economy increase. How would such a change affect the cost of both debt and common equity based on the CAPM?

Reference no: EM133338952

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