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Rumolt Motors has 33 million shares outstanding with a price of $18 per share. In addition,...

Question:

Rumolt Motors has 33 million shares outstanding with a price of $18 per share. In addition, Rumolt has issued bonds with a to

Rumolt Motors has 33 million shares outstanding with a price of $18 per share. In addition, Rumolt has issued bonds with a total current market value of $823 million. Suppose Rumolt's equity cost of capital is 14%, and its debt cost of capital is 10%. a. What is Rumolt's pretax weighted average cost of capital? b. If Rumolt's corporate tax rate is 21%, what is its after-tax weighted average cost of capital?

Answers

Before tax cost of debt = 10.00% Pre-tax WACC: Particulars Debt common stock weight 58% 42% cost 10.00% 14.00% weighted cost

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