Question

The following information relates to the Falcon Division of Xenon Enterprises: Interest rate on debt capital Cost of equity capital Market value of debt capital Market value of equity capital Income tax rate 8% 12% $ 50 million $80 million 30% On the basis of this information, Falcon's weighted-average cost of capital is closest to: Multiple Choice O 7.3%. O 8.3% O 9.5%. 10.8% O None of the answers is correct.

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

1 Answer 2 Part 12) 3 4 The correct answer is 9.5% 5 6 Weighted average cost of capital Weights Cost of Capital Weighted average cost of capital 2.15 7.39 9.54 0.38 0.62 5.60% 12.00% Amount 7 Source 8 Debt Capital 50 9 Equity Capital 80 10 11 12 The correct answer is 9.5% 13 14 Part 13) 15 The correct answer is $2732000 16 17 Economic Value Added = Net Operating income - ((assets-liabilities)* weighted average cost of capital) 18 = 3200000 - ((7000000-1800000) *9%) 19 = $ 2732000 20 21 Thus the correct answer is $ 2732000 22