Case Study 15.1 A Publically Traded Company Has Issued $50M Worth of Stocks

Multiple Choice

Case Study 15.1
A Publically traded company has issued $50M worth of stocks. The stock holders expect a rate of return of 12%. The company has a bank loan at an interest rate of 10% worth $12M. The company has sold bonds worth $20M at a rate of 6% compounded yearly.
-What is the after tax cost of capital if the company is in the 34% income tax bracket.

A) 9.25%
B) 6.2%
C) 7.02%
D) None of these