# Calculate the after-tax cost of debt

1 Whitewater’s stock is trading at \$3700 per share The stock is expected to have a year-end dividend of \$2return is 12 percent If you are an analyst who believes in efficient markets, what is your forecast of g? Answer in a percentage without the % sign, and round it to two decimal places, ie, 1054 for 1054% (or 01054)20 per share (D.25em;”>1), which is expected to grow at some constant rate g throughout time The stock’s required rate of

2 Calculate the after-tax cost of debt if an interest rate is 5 percent and the tax rate is 34 percent Express your answer in percentage (without the % sign) and round it to two decimal places

true or false

1 The WACC represents the cost of capital based on historical averages In that sense, it does not represent the marginal cost of capital

2 When calculating the cost of capital, the cost of retained earnings should be zero as the company already earned it in previous periods

3 If a company uses CAPM to compute the cost of equity, a reduction in the market risk premium reduces a company’s WACC

4Typically the after-tax cost of debt financing exceeds the after-tax cost of equity financing

5 All else equal, an increase in a company’s stock price will increase the marginal cost of common stock, rs

6 The cost of capital should reflect the weighted average cost of the various sources of long-term funds a firm uses to support its assets

7 is the amount of cash flow available for distribution to all investors after all necessary investments in operating capital have been made

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