Start networking and exchanging professional insights

Register now or log in to join your professional community.

Follow

A firm must raise $10 million dollars in funding for a capital investment project. $2 million will be raised by issuing debt?

with an interest rate of10% while the remainder will be raised by issuing stocks that will yield a return of12%. The firm's marginal tax rate is30%. What is the firm's composite cost of capital?

 a.15% 

 b.12% 

 c.11% 

 d.10% 

user-image
Question added by Emad Mohammed said abdalla , ERP & IT Software, operation general manager . , AL DOHA Company
Date Posted: 2015/08/05
Ismael Hamad
by Ismael Hamad , Trainer , ANTONOIL DMCC , Lukoil project, WQ2

......................................c.11% ...............................................................

khaled elkholy
by khaled elkholy , HR MANAGER , misk for import & export

11 % is ......................right ..............................

Ramesh Sehgal
by Ramesh Sehgal , Chief Financial Officer , How United Services WLL

Answer is11% as only interest is tax deductible.

Formula will be :

2x10% x(1-.3) +8x12%=1.4+9.6=11%

 

Salvatore Augello
by Salvatore Augello , owner , A.S. Trade & Consult

answer C ________________________________________________________

Emad Mohammed said abdalla
by Emad Mohammed said abdalla , ERP & IT Software, operation general manager . , AL DOHA Company

  1. The correct answer was: c.11%

Yaqoub Alomar
by Yaqoub Alomar , Civil Engineer , Al-Zubeir municipality

Thanks for the invitation,

I agree with the experts 

Mohammed Asim Nehal
by Mohammed Asim Nehal , M Asim Nehal & Co , Chartered Accountants

It is11% ..................option c) is the correct answer,