Question

Safari Fichier Edition Présentation Historique Signets Fenêtre Aide 94%), L' Jeu, 08:52 a : Quiz: Chapter 11 Quiz Submit Quiz This Question: 6 pts 14 of 19 This Quiz: 75 pts possible Qineti? plc. makes full body scanners for airport security systems. The Transportation Security Administration (TSA) is considering ordering 100 such machines at a total cost of $20 million. To ramp up production for the order Qinetiq is considering building a new factory. To evaluate the new factory project, Qinetiq needs to estimate its cost of capital. Review the following information and answer the questions that follow to help Qinetiq with its analysis. Debt Number of bonds outstanding300,000 Face value- Maturity Coupons- Market price- Tax rate- $1,000 2 years 6% paid annually $1,018.86 40% Equity Market price Shares outstanding Beta Risk-free rate: Expected return on market- $30 7 million 1.10 496 8% What is the after-tax cost of debt for Qinetiq bonds? According to the CAPM, what is the required return of Qinetiq shareholders? a. b. a. What is the after-tax cost of debt for Qinetiq bonds? (Round to two decimal places.) According to the CAPM, what is the required return of Qinetiq shareholders? % (Round to two decimal places.) What is the weighted average cost of capital (WACC) for Qinetiq? % (Round to two decimal places.) b. c. | Enter your answer in each of the answer boxes. Save for Later

Answer 1

cost of common stock in %	risk free rate+(market return-risk free rate)*beta	4+(8-4)*1.1	8.75%
before tax cost of debt	interest+(par value-market value)/ years to maturity / (par value+market value)/2	60+(1000-1018.86)/2 / (1000+1018.86)/2	(41.14/1009.43)	4.08%
after tax cost of debt in %	before tax cost of debt*(1-tax rate)	4.08*(1-.40)	2.45
value of debt	300000*1018.86	305658000
value of common stock	7000000*30	210000000
total market value of capital		515658000
source		weight	cost	weight *cost
debt	305658000	0.5927533	2.45	1.45
common stock	210000000	0.4072467	8.75	3.56
weighted average cost of capital (using market value weight)	515658000			5.01