Answer to Question #106629 in Economics for jaafar

Question

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%

B.10.29%

C.10.75%

D.100.00%

Answer 1

1. C
2. B
3. C
4. A
5. B