Order the answer to: The required return on assets is 18%. The firm can

Order the answer to: The required return on assets…

Question	The required return on assets is 18%. The firm can borrow at 12.5%; firm’s target debt to value ratio is 3/5. The corporate tax rate is 34%, and the risk-free rate is 4% and the market risk premium is 9.2 percent. What is the weighted average cost of capital? The Feedback I was given is: Kl = 23.45% = 18% + 1.5 × (18% ? 12.5%) × (1 ? .34)weighted average cost of capital = 2/5 × 23.45% + 3/5 × (12.5%) × (1 ? .34)= 14.33% And the Ans is: 14.33%. My questions are: where does the 1.5 or 23.45% come from?
Subject	business-corporate-finance

Question

The required return on assets is 18%. The firm can borrow at 12.5%; firm’s target debt to value ratio is 3/5. The corporate tax rate is 34%, and the risk-free rate is 4% and the market risk premium is 9.2 percent. What is the weighted average cost of capital? The Feedback I was given is: Kl = 23.45% = 18% + 1.5 × (18% ? 12.5%) × (1 ? .34)weighted average cost of capital = 2/5 × 23.45% + 3/5 × (12.5%) × (1 ? .34)= 14.33% And the Ans is: 14.33%. My questions are: where does the 1.5 or 23.45% come from?

Subject

business-corporate-finance

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