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Cost of equity 16 before tax cost of debt 13 marginal tax rate 40 stock sells at book value what is the after tax weighted average cost of capital?
Wiki User
∙ 16y ago
I have just started taking finance class in college. I found the formula to this equation on wikipedia. Did i win anything? After tax cost of debt formula before tax rate x (1 - marginal tax) Therefore: 13% x (1 - 40%) = .078 > 7.8%
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∙ 16y ago
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How do you calculate the after tax cost of financing?
THE TARGET CAPITAL STRUCTURE FOR QM IS 43% COMMON STOCK, 13% PREFERRED STOCK, AND 44% DEBT. iF THE COST OF COMMON EQUITY FOR THE FIRM IS 18.6%, THE COST OF PREFERRED STOCK IS 10.4%, AND THE BEFORE TAX OF DEBT IS 7.8%, AND THE FIRM RATE IS 35%. What is QM's weighted average cost of capital?
X company has a cost of debt of 8 a cost of equity of 14 a debt to value ratio of 60 and a tax rate of 30 what is the x company average cost of capital?
Weighted average cost of capital of X company would be as follows (60% * 8) + (40% * 14) = 10.4% This is before taking taxation into account with taxation the cost of debt would change and would turn to cost of debt after taxation = 8 * (1 - 0.3) = 5.6% and the Cost of capital would be (60% * 5.6) + (40% * 14) = 8.96% Explanation of the above treatments would be that weighted average cost of capital consists of costs of all types of capitals being used as a proportion of the total capital. In this case the total capital was 60% debt financed and 40% equity financed so the costs of each type of capital were taken as a proportion to calculate a weighted average cost of capital which means that the firm requires this cost as the minimum return as it is bearing these costs for the acquistion of finance, which is being used to earn profits. Why tax reduces the cost of debt is because the interest payments are made free of tax while dividends are subject to taxation. Interest payments save about 30% of tax not being charged on the profits so this effectively reduces the cost of debt to the company coz it attracts tax free interests. The amount of interest that the company has to pay out of profits will not be charged to tax so the company is although paying 8 % for the interest but it is also saving 30% tax that was to be paiid on those profits had they not been charged as interest. So the effective cost of debt would become 8% * (1-0.3) = 5.6 % and then u can calculate the cost of capital for X company.
What is the difference between return on capital and return on investment?
return on capital = earnings before interest and tax / capital employed * 100
What was the name of Capital One bank before it became Capital One?
north fork bank
Equilibrium of firm under Perfect competition using MR and MC approach?
Equilibrium of Firm: MR - MC ApproachProfit maximization is one of the important assumptions of economics. It is assumed that the entrepreneur always tries to maximize profit. Hence the firm or entrepreneur is said to be in equilibrium if the profit is maximized. According to Tibor Sitovosky "A market or an economy or any other group of persons and firms is in equilibrium when none of its member's fells impelled to change his behavior". Naturally, the firm will not try to change its position when it is in equilibrium by maximizing profit.There are two approaches to explain the equilibrium of the firm regards to profit maximization. They are - total revenue-total cost approach and marginal revenue-marginal cost approach. Here we concentrate only on MR - MC approach.The equilibrium of firm on the basis of MR - MC approach has been presented in the table belowAccording to MT -MC approach, when marginal revenue equals marginal cost the firm is in equilibrium and gets maximum profit. Hence, a rational producer determines the quality of output where marginal revenue equals marginal cost.The difference between total revenue and total cost is highest 210, at four units of output. At this output, both marginal revenue and marginal cost are equal, 80. Hence profit is maximized. The firm is in equilibrium. It should be noted that the table relates to imperfect competition, when price is reduced to sell more.The following two conditions are necessary for a firm to be in equilibrium.(a) The marginal revenue should be equal to marginal cost.(b) The marginal cost curve should cut marginal revenue curve from below.The equilibrium of a under to MR - MC approach has been presented in figure:-The figure depicts the equilibrium of a firm under perfect competition. The same is applicable to the firms under imperfect competition. The only difference is that the AR & MR curves under imperfect competition are different and they are downward sloping.In the figure 'OP' is the given price. Since, under perfect competition, average revenue equals marginal revenue, the AR and MR curves are horizontal from P. The profit-maximizing output is OM. Here, marginal revenue and marginal cost are equal. It is because MC and MR curves intersect each other at point E. The firm earns profit equal to PEBC.The first condition necessary for firm's equilibrium is that marginal cost should be equal to marginal revenue. But this is not a sufficient condition. It is because the firm may not be in equilibrium even if this condition is fulfilled. In the figure, this condition is fulfilled at point F. but the firm is not in equilibrium. The profit is maximized only at output OM which is higher than output ON.The second condition necessary for equilibrium is that the marginal cost curve must cut marginal revenue curve from below. This implies that marginal cost should be rising at the point of intersection with MR curve. Hence, both the conditions have been fulfilled at point E. In the figure, MC curve cuts MR curve from at point F from above. Hence, this point cannot be the point of stable equilibrium. It is because before that point marginal cost exceeds marginal revenue. It shows that it is not reasonable to increase output. After point F, the MR curve lies above MC curve. This shows that it is reasonable to increase output.
Why is the after-tax cost of debt rather than the before-tax cost used to calculate the weighted average cost of capital?
Because interest expense is deductible. Because interest expense is deductible.
Why does the weighted average cost of capital of firms that uses more debt capital lower that that of a firm that uses less debt capital?
Because the cost of debt is generally lower than the cost of equity. This is because in case of financial distress, debt-holders are repaid before the equity holders are, as well as because debt has the assets of the firm as collateral and equity does not.
How do you calculate the after-tax cost of financing?
THE TARGET CAPITAL STRUCTURE FOR QM IS 43% COMMON STOCK, 13% PREFERRED STOCK, AND 44% DEBT. iF THE COST OF COMMON EQUITY FOR THE FIRM IS 18.6%, THE COST OF PREFERRED STOCK IS 10.4%, AND THE BEFORE TAX OF DEBT IS 7.8%, AND THE FIRM RATE IS 35%. What is QM's weighted average cost of capital?
How do you calculate the after tax cost of financing?
THE TARGET CAPITAL STRUCTURE FOR QM IS 43% COMMON STOCK, 13% PREFERRED STOCK, AND 44% DEBT. iF THE COST OF COMMON EQUITY FOR THE FIRM IS 18.6%, THE COST OF PREFERRED STOCK IS 10.4%, AND THE BEFORE TAX OF DEBT IS 7.8%, AND THE FIRM RATE IS 35%. What is QM's weighted average cost of capital?
Is weighted equipment dangerous to use by yourself?
Weighted equipment can be dangerous if used on your own when you do not know the proper form and method to using it. It may be beneficial to watch videos before using any type of weighted equipment to ensure you do not injure your back.
What was the capital before Juneau?
Kodiak before Sitka and Sitka before Juneau.
Can weighted training vests cause back problems?
Always seek advise with doctors before training with a weighted training vest. The overuse of a weight vest can lead to injury of the back, neck, or hips or previous injuries could be worsened by use of a weighted vest.
Explain hot the marginal product of labor and the average product of labor change as the quantity of labor employed increases initially and eventually?
Initially, the MPL and APL fall since there can be no jump in the level of capital used by these workers, and thus output put worker is less than before. However, as time goes on, actual invesmtent exceeds break-even investment and the level of capital increases until the old equilibrium value of capital per worker is reached. At this point, after convergence or time, the MPL and APL are restored to their original values (ceteris paribus).
What was the capital before harara?
The capital of Ethiopia before Addis Ababa was Entoto.
What was the previous capital of pakistan?
Karachi was the Capital of Pakistan before Islamabad...........
X company has a cost of debt of 8 a cost of equity of 14 a debt to value ratio of 60 and a tax rate of 30 what is the x company average cost of capital?
Weighted average cost of capital of X company would be as follows (60% * 8) + (40% * 14) = 10.4% This is before taking taxation into account with taxation the cost of debt would change and would turn to cost of debt after taxation = 8 * (1 - 0.3) = 5.6% and the Cost of capital would be (60% * 5.6) + (40% * 14) = 8.96% Explanation of the above treatments would be that weighted average cost of capital consists of costs of all types of capitals being used as a proportion of the total capital. In this case the total capital was 60% debt financed and 40% equity financed so the costs of each type of capital were taken as a proportion to calculate a weighted average cost of capital which means that the firm requires this cost as the minimum return as it is bearing these costs for the acquistion of finance, which is being used to earn profits. Why tax reduces the cost of debt is because the interest payments are made free of tax while dividends are subject to taxation. Interest payments save about 30% of tax not being charged on the profits so this effectively reduces the cost of debt to the company coz it attracts tax free interests. The amount of interest that the company has to pay out of profits will not be charged to tax so the company is although paying 8 % for the interest but it is also saving 30% tax that was to be paiid on those profits had they not been charged as interest. So the effective cost of debt would become 8% * (1-0.3) = 5.6 % and then u can calculate the cost of capital for X company.
What capital of Brazil was before Brasilia?
Rio de Janero was the capital of brasil before brasilia.
