Ghirardelli currently has no loans. The company's cost of capital is 12 percent annually. Ghirardelli expects a cash inflow of $111,000 in annual earnings before interest and axes, forever. The company faces a 22 % tax rate on all taxable income. Ghirardelli does decide to borrow money, it will do so by issuing corporate bonds. If his happens, the interest rate on the bonds will be 8%. . Ghirardelli's cost of equity will equal if it borrows $165,000 and uses it back its shares of stock. (Do not round intermediate calculations and enter yo answer as a percent rounded to 2 decimal places, e.g., 32.16.) W - Continue part (a). In addition, in this case Ghirardelli's weighted average cost of capital will equal (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Ghirardelli currently has no loans. The company's cost of capital is 12 percent annually. Ghirardelli expects a cash inflow of $111,000 in annual earnings before interest and axes, forever. The company faces a 22 % tax rate on all taxable income. Ghirardelli does decide to borrow money, it will do so by issuing corporate bonds. If his happens, the interest rate on the bonds will be 8%. . Ghirardelli's cost of equity will equal if it borrows $165,000 and uses it back its shares of stock. (Do not round intermediate calculations and enter yo answer as a percent rounded to 2 decimal places, e.g., 32.16.) W - Continue part (a). In addition, in this case Ghirardelli's weighted average cost of capital will equal (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Ghirardelli currently has no loans. The company's cost of capital is 12 percent annually.
Ghirardelli expects a cash inflow of $111,000 in annual earnings before interest and
taxes, forever. The company faces a 22 % tax rate on all taxable income.
If Ghirardelli does decide to borrow money, it will do so by issuing corporate bonds. If
this happens, the interest rate on the bonds will be 8 %.
a. Ghirardelli's cost of equity will equal
if it borrows $165,000 and uses it to
back its shares of stock. (Do not round intermediate calculations and enter your
answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. Continue part (a) In addition, in this case Ghirardelli's weighted average cost of
capital will equal
(Do not round intermediate calculations and enter your
answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a.
Cost of equity
b. WACC
%
%
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