Question

Please please please help I'll give a medal
As financial manager for ABZ Corporation, you are trying to determine the appropriate cost of capital for the firm. The firm is considering an investment which will require an initial outlay of $100,000. The firm can issue bonds at a price of $940.82 which have a coupon rate of 8% on 10 years to maturity and a face value of $1,000. However, the underwriter would charge flotation costs of $5 per bond. The company can issue new equity at a before-tax cost of 16%. It has $75,000 of internal equity available for investment projects at this time. The required rate of

Answer 1

The required rate of return on the company’s stock is 14%, and its marginal tax rate is 34%. If the company wishes to maintain its current capital structure of 60% debt and 40% equity, what is the appropriate cost of capital to use for this project’s capital budgeting analysis?
a. 14%
b. 8.77%
c. 9.16%
d. 10%