Finance Learning exp.2
|
Sources |
Amounts |
|
Trade and other payables |
$200,000 |
|
Short-term borrowings |
250,000 |
|
Mortgage |
500,000 |
|
Long-term borrowings |
250,000 |
|
Share capital |
300,000 |
|
Retained earnings |
800,000 |
The before-tax bank charges are 11.0% for the short-term borrowings, 10.0% for the long-term borrowings, and 10.5% on the mortgage. The shareholders expect to earn 16%. Assume that the company’s income tax rate is 50%.
Questions
1. Calculate the company’s after-tax cost of borrowing rounded to the nearest tenth of a percent.
2. Calculate the company’s weighted average cost of capital rounded to the nearest tenth of a percent.
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