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the market value of cable company's equity is $60 million and the market value of its debt is $40 million. if the required rate of return on the equity is 15 percent and that on its debt is 5 percent, calculate the company's cost of capital. (assume no taxes.)

Sagot :

AnjaliP102idn

The company's cost of capital with rate of return on the equity is 15% and debt is 5% is :

11 %.

What is cost of capital?

  • The cost of capital is the minimum rate of return or profit that a company must achieve before it can generate value. The accounting department of a company calculates it to determine financial risk and whether an investment is justified.

Here given,

Cable Company's equity is worth $60 million in the market.

and its debt is worth $40 million in the market.

If the required rate of return on equity = 15%

And the required rate of return on debt =  5%,

We have to compute the firm's cost of capital (No taxes are assumed.)

Cost of capital = (40/100)(5%) + (60/100)(15%)

= 11%

Cost of capital for the company is 11%.

To learn more about cost of capital refer to :

https://brainly.com/question/8287701

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