Question

Cy's Inc. has earnings before interest and taxes of $106,000. Both the book and the market value of debt are $170,000. The unlevered cost of equity is 15.5 percent, while the pre-tax cost of debt is 8.6 percent. The tax rate is 38 percent. What is the firm's after-tax weighted average cost of capital? A. 11.94 percent B. 12.65 percent C. 13.45 percent D. 14.01 percent E. 14.37 percent

Name: cys inc has earnings before interest and taxes of 106000 both the book and the market value of debt is 170000 the unlevered cost of equity is 155 percent while the pre tax cost of debt is 86 53701
Uploaded: 2024-05-09T08:08:26-08:00
Duration: 4 min 53 s
Channel: Adi S
Description: cys inc has earnings before interest and taxes of 106000 both the book and the market value of debt is 170000 the unlevered cost of equity is 155 percent while the pre tax cost of debt is 86 53701

          Cy's Inc. has earnings before interest and taxes of $106,000. Both the book and the market value of debt are $170,000. The unlevered cost of equity is 15.5 percent, while the pre-tax cost of debt is 8.6 percent. The tax rate is 38 percent. What is the firm's after-tax weighted average cost of capital?
A. 11.94 percent
B. 12.65 percent
C. 13.45 percent
D. 14.01 percent
E. 14.37 percent

Added by Tracey I.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

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Solved by Expert Adi S

05/09/2024

Step 1

The after-tax cost of debt is calculated using the formula: After-tax cost of debt = Pre-tax cost of debt * (1 - Tax rate). Given that the pre-tax cost of debt is 8.6 percent (or 0.086 when converted to a decimal) and the tax rate is 38 percent (or 0.38 when Show more…

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Cy's Inc. has earnings before interest and taxes of $106,000. Both the book and the market value of debt are $170,000. The unlevered cost of equity is 15.5 percent, while the pre-tax cost of debt is 8.6 percent. The tax rate is 38 percent. What is the firm's after-tax weighted average cost of capital? A. 11.94 percent B. 12.65 percent C. 13.45 percent D. 14.01 percent E. 14.37 percent