Jemisen's has expected earnings before interest and taxes of $6,200. Its unlevered cost of capital is 14 percent

D. L. Tuckers has $21,000 of debt outstanding that is selling at par and has a coupon rate of 7.5 percent. The tax rate is 32 percent. What is the present value of the tax shield?    A.  $504 B.  $615 C.  $644 D.  $6,200 E.  $6,720 Present value of the tax shield = 0.32 × $21,000 = $6,720

81.

Jemisen's has expected earnings before interest and taxes of $6,200. Its unlevered cost of capital is 14 percent and its tax rate is 34 percent. The firm has debt with both a book and a face value of $2,500. This debt has a 9 percent coupon and pays interest annually. What is the firm's weighted average cost of capital?    A.  12.48 percent B.  13.60 percent C.  13.87 percent D.  14.14 percent E.  14.37 percent VU = [$6,200 × (1 - 0.34)]/0.14 = $29,228.57 VL = $29,228.57 + (0.34 × $2,500) = $30,078.57 VE = $30,078.57 - $2,500 = $27,578.57 RE = 0.14 + (0.14 - 0.09) × ($2,500/$27,578.57) × (1 - 0.34) = 0.142991 WACC = [($27,578.57/$30,078.57) × 0. 142991] + [($2,500/$30,078.57) × 0.09 × (1 - 0.34)] = 13.60 percent

82.

A firm has debt of $12,000, a leveraged value of $26,400, a pre-tax cost of debt of 9.20 percent, a cost of equity of 17.6 percent, and a tax rate of 37 percent. What is the firm's weighted average cost of capital?    A.  11.47 percent B.  11.52 percent C.  11.69 percent D.  12.23 percent E.  12.48 percent WACC = {[($26,400 - $12,000)/$26,400] × 0.176} + [($12,000/$26,400) × 0.092 × (1 - 0.37)] = 12.23 percent