A company has annual net operating cash flow (X) of 1

Finance Oct 08, 2020

A company has annual net operating cash flow (X) of 1.5 million dollars in perpetuity and the market value of its capital (V) is 11.8 million dollars. What is the company's cost of capital k _o? Provide your answer as a percentage to two decimal places.

Expert Solution

Computation of the company's cost of capital:-

Market value of capital = Annual net operating cash flow / Cost of capital

$11.8 = $1.5 / Cost of capital

Cost of capital = $1.5 / $11.8

= 12.71%

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