Welcome to Westonci.ca, your one-stop destination for finding answers to all your questions. Join our expert community now! Ask your questions and receive accurate answers from professionals with extensive experience in various fields on our platform. Discover in-depth answers to your questions from a wide network of professionals on our user-friendly Q&A platform.

Terex company has a beta of 1.7 and is trying to calculate its cost of equity capital. If the risk-free rate of return is 5 percent and the average market return 16 percent, then what is the firm's after-tax cost of equity capital if the firm's marginal tax rate is 30 percent? Select one: a. 23.7 % b. 22.5 % c. None of these d. 22.8 %

Sagot :

Answer:

c. None of these

Explanation:

According to the scenario, computation of the given data are as follows,

Company Beta = 1.7

Risk free rate = 5%

Average market return = 16%

Marginal tax rate = 30%

So, we can calculate the after tax cost of equity by using following formula,

Cost of equity =  Risk free Rate + company beta × Average market return

Cost of equity = 5% + (1.7 × 16%)

= 5% + 27.2%

= 32.2%