Black River Tours has a capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. The dividend payout ratio is 30 percent, the company's beta is 1.21, and the tax rate is 21 percent. Given this, which one of the following statements is correct?
A) The aftertax cost of debt will be greater than the current yield-to-maturity on the company's outstanding bonds.
B) The company's cost of preferred is most likely less than the company's actual cost of debt.
C) The cost of equity is unaffected by a change in the company's tax rate.
D) The cost of equity can only be estimated using the capital asset pricing model.
E) The weighted average cost of capital will remain constant as long as the company's capital structure remains constant.
Correct Answer:
Verified
Q5: All else constant, which one of the
Q6: The capital asset pricing model approach to
Q7: The cost of preferred stock:
A) is equal
Q8: The cost of preferred stock is computed
Q9: Which one of the following is the
Q11: A group of individuals got together and
Q12: Textile Mills borrows money at a rate
Q13: A company's pretax cost of debt:
A) is
Q14: The primary advantage of using the dividend
Q15: The capital structure weights used in computing
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents