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Author Question: Rogue River Retail Inc. has a before-tax cost of debt of 8.00, a cost of equity of 12.00, a tax rate ... (Read 69 times)

DyllonKazuo

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on: Jul 11, 2018
Rogue River Retail Inc. has a before-tax cost of debt of 8.00, a cost of equity of 12.00, a tax rate of 30.00 and no preferred stock outstanding. If the firm is made up of 50 debt and 50 equity, what is the firm's after-tax cost of borrowing?
 
  A) 12.00
  B) 11.60
  C) 8.00
  D) 5.60

Question 2

Financial theory suggests and empirical evidence supports the idea that firms have apecking order by which they choose to raise funds to finance assets. From the first source of financing to the last this pecking order is:
 
  A) internally generated funds, debt, and new equity.
  B) debt, internally generated funds, and equity.
  C) equity, debt, and internally generated funds.
  D) None of the above, there is no such preference.


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ttt030911

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Reply #1 on: Jul 11, 2018
Answer to Question 1

D
Explanation: D) = Kd (1-t) = 8  (1-.3 ) = 5.60.

Answer to Question 2

A


DyllonKazuo

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Reply 2 on: Jul 11, 2018
Excellent

31809pancho

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Reply 3 on: Yesterday
Great answer, keep it coming :)

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