question archive Unida Systems has 40 million shares outstanding trading for $ 8 per share
Unida Systems has 40 million shares outstanding trading for $ 8 per share
Subject:FinancePrice:2.84 Bought5
Unida Systems has 40 million shares outstanding trading for $ 8 per share. In? addition, Unida has $ 95 million in outstanding debt. Suppose? Unida's equity cost of capital is 13 %?, its debt cost of capital is 9 %?, and the corporate tax rate is 34 %.
a) What is? Unida's unlevered cost of? capital?
b) What is? Unida's after-tax debt cost of? capital?
c) What is? Unida's weighted average cost of? capital?
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a) 12.08%
b) 5.94%
c) 11.38%
Step-by-step explanation
a) Unlevered cost of capital = Equity * Cost of equity + Debt * Cost of debt
Equity = 40 million shares * 8 = 320 million
Debt = 95 million
Total = 95 + 320 = 415 million
Unlevered cost of capital = ?415320?? * 13% + ?41595??*9%
=10.02 % + 2.06%
= 12.08 %
b) After-tax debt cost of capital = Cost of Debt * (1 - tax rate)
= 9% * (1 - 0.34)
= 5.94%
c) WACC = Equity * Cost of equity + Debt * Cost of debt * (1 - tax rate)
= ?415320??* 13% + ?41595?? * 5.94%
= 10.02% + 1.36%
= 11.38%
