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Free CMA Exam Braindumps (page: 180)

Page 180 of 336
PDF with 1336 Questions
View Related Case Study

What is the weighted average cost of capital for a firm using 65% common equity with a return of 15%. 25% debt with a return of 6%. 10% preferred stock with a return of 10%.
and a tax rate of 35%?

  1. 10.333%
  2. 11275%
  3. 11325%
  4. 12.250%

Answer(s): C

Explanation:

The cost for equity capital is given as 15%, and preferred stock is 10% The before-tax rate for debt is given as 6%. Which translates to an after-tax cost of 3.9% [6% x (1 -- .35)]. The rates are weighted as follows:
15% x .65 = 9.750
10% x .10 = 1.000
3.9% x .25 = .975
11.725%



View Related Case Study

What is the after-tax cost of preferred stock that sells for $5 per share and offers a $0.75 dividend when the tax rate is 35%?

  1. 5.25%
  2. 9.75%
  3. 10.50%
  4. 15%

Answer(s): D

Explanation:

Because there is no tax shield associated with preferred stock, the after-tax cost is the same as the before-tax cost.Thus, $75 ÷ $5.00 = 15%. Preferred dividends are not deductible for tax purposes.



View Related Case Study

What s the weighted average cost of capital for a firm with equal amounts of debt and equity financing, a 15% before-tax company cost of equity capital, a 35% tax rate, and a 12% coupon rate on its debt that is selling at par value?

  1. 8.775%
  2. 9.60%
  3. 11.40%
    D 13.50%

Answer(s): C

Explanation:

The 12% debt coupon rate is reduced by the 35% tax shield, resulting in a cost of debt of 78% [12% x (1 -- .35)1 The average of the 15% equity capital and 7.8% debt is 11.4%



View Related Case Study

What is the weighted average cost of capital for a firm with 40% debt. 20% preferred stock, and 40% common equity if the respective costs for these components are 8% after- tax, 13% after-tax, and 17% before-tax'? The firm's tax rate is 35%

  1. 1022%
  2. 10.52%
  3. 1148%
  4. 1260%

Answer(s): D

Explanation:

All three rates are quoted as after-tax rates since there is no tax shield associated with common equity capital. Thus, simply weight the three rates to determine the weighted average cost.



Page 180 of 336



Post your Comments and Discuss Financial CMA exam with other Community members:

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INDIA
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Anonymous
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Georgodino commented on April 29, 2021
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Anonymous
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emad hamdy commented on May 03, 2019
great for passing not so good for learning. Just use it as cheat sheet.
UNITED STATES
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Amer Alnajjar commented on March 11, 2019
Still the test is under process
Anonymous
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