Answere and solution of 121314 12. With risk-free rate of 6%, Beta of 1.5, market return of 8%, prevailingcredit spread of 3%, tax rate of 30% and Equity ratio of 30%, UsingCAPM method compute for the cost of equity.100VALUATION CONCEPTS AND METHODOLOGIESa. 9.00%6 77%C. 8.00%d. 8.77%13. The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%,market return of 8%, prevailing credit spread of 3%, tax rate of 30%and Equity ratio of 30%, compute for the volatility of stocks or Beta.а. 1.00b. 1.25C. 1.50d. 1.7514. The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%,market return of 8%, prevailing credit spread of 3%, tax rate of 30%and Equity ratio of 30%, compute for the after tax cost of debt.a. 4.90%b. 5.00%C. 7.00%d. 10.00%

12 Calculate cost of equity using CAPM model as shown below: Cost of equity Risk free…

Answered: compute for the after tax cost of debt.

Business

Accounting

compute for the after tax cost of debt.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: What would be Oberon's before-tax component cost of debt? (Round your answer to 2 declmal places.)

A: Cost of debt: It is the cost of raising debt capital for the issuers. The same cost of debt becomes…

Q: Kindly explain and give an example of Capital Gains Tax

A: Introduction:- The capital gains tax is a federal tax. It is charged on profit made from selling…

Q: Compute the tax due assuming

A: Tax due is the amount which has to be paid to the government and the same has been computed on the…

Q: How can we determine the after-tax cost of debt?

A: Cost of capital is the overall cost of financing the funds from all sources of finance. The cost of…

Q: How to calculate the indexed cost base for capital gains tax

A: SOLUTION- CAPITAL GAIN TAX- IT IS A TYPE OF TAX APPLIED TO THE PROFITS EARNED ON THE SALE OF AN…

Q: Why is the after tax cost of debt rather than the before tax cost used to calculate the weighted…

A: Weighted average cost of capital : WACC or Weighted average cost of capital, as the name suggests,…

Q: Describe the procedures for determining after-tax net cash flows in taxable situations?

A: Net cash flow after tax is an important measure used for the purpose of evaluation of company's…

Q: after tax cash flow

A: Depreciation = Cost of the asset * Rate of recovery Cost of the asset $500,000 Rate of recovery…

Q: How do I calculate and record the related after tax cash flow effect(s)?

A: THE FOLLOWING IS THE ANSWER

Q: computing the cost of debt, a tax adjustment is required t arrive at after-tax cost of debt. Why is…

A: Cost of Equity: It is the rate of return the company pays to the investor for investing in the…

Q: Define Income tax paid

A: Income tax paid is a charge or payment made to the government by the individual or the firms in a…

Q: Explain various types of taxes

A: taxes A tax may be a obligatory fee or monetary charge levied by any government on a private or a…

Q: profit after taxes will be produced

A: A rise in sales will cause a proportional rise in the variable costs. But, the fixed costs will…

Q: What are the capital assets subject to capital gains tax?

A: capital assets are significant piece of property which may be the home ,cars investment property…

Q: Requirements: Discuss final income tax using the names and amounts given.

A: Final income tax is the amount of tax which is charged on the income such as interest income which…

Q: What is calculation of before Tax (Equity) Cash Flow? Please provide example.

A: The cash flow, which is generated by an investment after deducting all payments of all expenses from…

Q: After tax cost of interest deals with the fact that interest is deductible for tax purposes.…

A: Interest expenses are the expenses which are related to borrowings raised by the company. The…

Q: Define average tax rate

A: The taxes are the government source of income from the general public. The tax rate are the…

Q: How do you calculate the relative advantage of the debt given the highest corporate tax rate, the…

A: Relative Tax Advantage is tax savings made by firm by having debt in their capital structure and…

Q: Define Accrued income taxes.

A: Income Tax Expenses: The expenses which are related to the taxable income of the individuals and…

Q: Illustrate what is incremental tax rate?

A: Definition: Tax: Tax is the compulsory legal payment that is imposed by the government.…

Q: Why do we use an after-tax figure for cost of debt but not for cost of equity?

A: Cost of debt is the interest payments a company needs to make for debt financing, whereas cost of…

Q: Identify additional issues in accounting for income taxes.

Q: Which of the following items isreported net of related income taxes?a. Gain or loss from…

Q: Define Income before taxes.

Q: Discuss the various effects of income taxes on the ability to work, save and invest

A: Income Taxes- Individuals, entities/corporations/firms, and entities/corporations/firms are taxed on…

Q: How much was the profit before finance cost and income tax?

A: Cash Flow Statement is a part of the Financial Statement of a company. It literally means a…

Q: Calculate the net income after tax

A: Net profit is also called the profit available to the shareholders or Profit available after meeting…

Q: Why is the after-tax cost of debt rather than the before-tax cost used to calculate the WACC?

A: WACC refers to weighted average cost of capital. It is the rate which a firm pays to its security…

Q: Define after-tax cost of cost of debt

A: The amount that is raised by the company by issuing the bonds or borrowing from the financial…

Q: final tax and income tax

A: Tax is a form of compulsory payment made to the government of the country. The amount that is…

Q: Explain with hypothetical example the effect of Investment Tax Credit.

A: Investment Tax Credit is an opportunity provided while filing for taxation where a deduction of a…

Q: Define the term taxes payable.

A: Tax: Tax refers to a compulsory payment or a contribution to the state revenue, levied by the…

Q: d Tax (VAT

A: Value Added Tax (VAT) is a broad tax that is levied on practically all products and services sold.…

Q: Compare the accounting for income taxes under GAAP and IFRS

A: GAAP and IFRS Collection of commonly-followed accounting rules and standards for financial reporting…

Q: Define tax savings due to interest (TSt )

A: Tax savings are the amount saved in form of tax payable to the government. Tax savings due to…

Q: What’s a muni bond, and how are these bonds taxed?

A: Municipal bonds also known as muni bonds are defined as debt securities which are issued by a…

Q: Calculate Earning before interest Tax

A: EBIT (earnings before interest and taxes) is a company's net income before income tax expense and…

Q: Which mathematial expression is used to calculate the after tax cost of debt?

A: Cost of debt: Cost of debt is the effective rate of interest that the firm pays on its present…

Q: Understand the fundamentals of accounting for income taxes.

Q: Define income tax expense.

Q: Required: Determine the tax liability, marginal tax rate, and average tax rate in each of the…

A: Tax liability can be defined as the compulsory obligation of the individual or business organization…

Q: What methods can be used to find the before-tax cost of debt? How is the before-tax cost of debt…

A: Debt is always considered after tax, because interest on debt is a tax deductible expense.

Q: What will be the Effect of Interest Rates on the After Tax IRR on Equity?

A: "Financial leverage is a double edged sword". If the company is not managing its financial resources…

Q: Explain what is meant by this statement: “Our tax rates areprogressive.”

A: Tax is the amount levied by the government from the taxpayer on their net taxable income. Net…

Question

Answere and solution of

12. With risk-free rate of 6%, Beta of 1.5, market return of 8%, prevailing
credit spread of 3%, tax rate of 30% and Equity ratio of 30%, Using
CAPM method compute for the cost of equity.
100
VALUATION CONCEPTS AND METHODOLOGIES
a. 9.00%
6 77%
C. 8.00%
d. 8.77%
13. The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%,
market return of 8%, prevailing credit spread of 3%, tax rate of 30%
and Equity ratio of 30%, compute for the volatility of stocks or Beta.
а. 1.00
b. 1.25
C. 1.50
d. 1.75
14. The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%,
market return of 8%, prevailing credit spread of 3%, tax rate of 30%
and Equity ratio of 30%, compute for the after tax cost of debt.
a. 4.90%
b. 5.00%
C. 7.00%
d. 10.00%

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

17. With risk-free rate of 6%, Beta of 1.5, market return of 8%, prevailing credit spread of 3% and cquity ratio of 30% Using CAPM method compute for the cost of equity. a) 9.00% b) 6.77% c) 8.00% d) 8.77% 18. The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%, market return of 8% prevailing credit spread of 3% tax rate of 30% and Equity ratio of 30%, compute for the volatility of stocks or beta. a) 1.00% b) 1.25% c) 1.50% d) 1.75% 19. The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%, market return of 8% prevailing credit spread of 3% tax rate of 30% and Equity ratio of 30%, compute for the after-tax cost of debt. a) 4.90% b) 5.00% c) 7.00% d) 10.00%
If a firm's beta is 1.1, the risk-free rate is 6%, and the expected return on the market is 14%, what will be the firm's cost of equity using the CAPM approach? Select one: a. 14.80% b. 21.40% c. 8.80% d. 15.40% e. 22.00%
13. The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%, market return of 8%, prevailing credit spread of 3%, tax rate of 30% and Equity ratio of 30%, compute for the volatility of stocks or Beta. a. 1.00 b. 1.25 С. 1.50 d. 1.75
Risk free rate = 5.00%; market return = 11.00%; and beta = 1.05. How much is the firm's cost of equity based on the CAPM? 11.30% 11.64% 11.99% 12.35%
Assuming that the expected market return [E(Rm)] is 11% and the risk-free rate of return (Rf) is 8%, the cost of equity of a company which has a beta (β) of 0.8 will be closest to: Select one: a. 12.16% b. 6.24% c. 4.16% d. 10.4%
11. With risk-free rate of 5%, Beta of 1.5, market return of 8%, prevailing credit spread of 3%, tax rate of 30% and Equity ratio of 30%, compute for the weighted average cost of capital. a. 6.00% b. 6.77% c. 7.00% d. 7.77%
Using Capital Asset Pricing Method (CAPM), compute for the cost of capital (equity) with risk-free rate of 4%, market return of 8% and Beta of 1.75 a. 13.00% b. 12.00% c. 11.00% d. 10.00%
A. CALCULATE the cost of equity capital of H Ltd., whose risk-free rate of return equals 10%. The firm's beta equals 1.75 and the return on the market portfolio equals to 15%. B. The current ratio of H Ltd is 5:1 and standard current ratio given by accounting bodies is 2:1? Do you think that H Ltd should try to reduce its current ratio?
Assuming the CAPM or one-factor model holds, what is the cost of equity for a firm if the firm's equity has a beta of 1.2, the risk-free rate of return is 4%, the expected return on the market is 10%, and the return to the company's debt is 7%? A. 11.2% B. 11.4% C. 12.8% D. 12.9% E. None of these.
The appropriate WACC of a firm is 6.77%. With market return of 8%, prevailing credit spread of 3%, tax rate of 30% and Equity ratio of 30%, what is the risk free rate of the firm with Beta of 1.5? a. 4% b. 5% c. 6% d. 7%
The cost of equity using the CAPM approach The current risk-free rate of return (rRF) is 3.86%, while the market risk premium is 6.63%. the Monroe Company has a beta of 0.92. Using the Capital Asset Pricing Model (CAPM) approach, Monroe's cost of equity is
18. The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%, market return of 8% prevailing credit spread of 3% tax rate of 30% and Equity ratio of 30%, compute for the volatility of stocks or beta. a) 1.00% b) 1.25% c) 1.50% d) 1.75% 19. The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%, market return of 8% prevailing credit spread of 3% tax rate of 30% and Equity ratio of 30%, compute for the after-tax cost of debt. a) 4.90% b) 5.00% c) 7.00% d) 10.00%