CORPORATE
VALUATION COST OF CAPITAL 7-21
PRACTICE EXERCISE 7.2
Directions: Calculate the correct solutions, then check them with the Answer Key.
7. Tri-Pro Company uses a target capital structure of 40% debt, 25% of preferred stock,
and 35% of common stock. Tri-Pro's estimated cost of debt is 7.37%, its estimated
cost of preferred stock is 9.1%, and its estimated cost of equity is 12.7%. If Tri-Pro's
marginal tax rate is expected to be 35%, what is the appropriate cost of capital to
discount Tri-Pro's possible projects?
________ %
8. Chicago Incorporated has a target structure of 45% debt and 55% equity. If Chicago's
estimated cost of debt is 4.25%, its estimated cost of equity is 9.36%, and its marginal
tax rate is 36%, what is its weighted average cost of capital?
________ %