Case One
Asus Company issued capital for $1,400,000 to start its new project. It issued bonds for $800,000 and acquired the remaining capital from common equity. Asus bond’s YTM is 12.5% and its common stock beta (β) is 1.5. Knowing that the risk free ( is 5% and market risk premium (MRP) is 6% and Taxes are 40%.
Questions 1→5 refers to Case One.
1. Asus weight of debt is:
A.$800,000
B.12.5%
C.57.14%
D.42.86%
2. Asus weight of common equity is:
A.11.00%
B.42.86%
C.57.14%
D.$600,000
3. The after-tax cost of debt for Asus is:
A.12.5%
B.5.0%
C.7.5%
D.6.0%
4. The cost of common equity for Asus is:
A.14.0%
B.13.5%
C.12.5%
D.11.0%
5. The Weighted Average Cost of Capital (WACC) for Asus is:
A.21.50%
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