SIROM Scientific Solutions has $10 million of outstanding equity and $5 million of bank debt. The bank debt costs 5% per year. The estimated equity beta is 2. If the market risk premium is 8% and the risk-free rate is 5%, compute the weighted average cost of capital if the firm's tax rate is 30%.

SIROM Scientific Solutions has $10 million of outstanding equity and $5 million of bank debt. The bank debt costs 5% per year. The estimated equity beta is 2. If the market risk premium is 8% and the risk-free rate is 5%, compute the weighted average cost of capital if the firm's tax rate is 30%.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter17: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 3P

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Question

K
SIROM Scientific Solutions has $10 million of outstanding equity and $5 million of bank debt. The bank debt costs
5% per year. The estimated equity beta is 2. If the market risk premium is 8% and the risk-free rate is 5%, compute
the weighted average cost of capital if the firm's tax rate is 30%.
OA. 15.17%
OB. 17.44%
O C. 15.93%
OD. 16.68%
...

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