True/False: Write "T' if the statement is true and "F" is the statement is false. 1. The focus of DuPont analysis is to provide management information as to how the firm is using its resources to maximize returns on owners' investments. 2. The financial manager should examine available risk-return trade-offs and make hi
ExxonMobil's required return for equity, Re is 14%. Its required return for debt, Rd is 8%, its debt-to-total-value ratio L, is 35%, and its marginal tax rate, T is 40%, calculate its (adjusted WACC)?
Suppose a firm is unleveraged and has an unleveraged required return, r, of 15%. The firm borrows 30% of the value of the firm at rd = 8%. Because of the financial leverage, re becomes 18%. The firm pays corporate taxes at a rate of 35% but otherwise operates in perfect capital market. What is the firm's WACC? a) Assuming th
~Why is Weighted Average Cost of Capital (WACC) important to an organization? ~What impact does WACC have on capital budgeting and structure? ~What are the risks and uncertainty related to capital budgeting?
Wiley has a capital structure of 35 percent debt, 10 percent preferred stock and 55 percent common stock. The pre-tax cost of debt (K d ) is 14 percent; the preferred stock value is (K ps ) 12.3 percent; and common stock in retained earnings (K s ) is 10.4 percent. The firm has a tax bracket of 40 percent. Calculate Wiley's
5. Given the following information, calculate the weighted average cost of capital for Situation A and Situation B: Situation A Situation B Capital Structure Common Stock 55% 30% Preferred Stock 15% 15% Debt 30% 55% Additional information Corporate tax rate 30% 30% Dividend, common $2.75 $2.
National Enterprises provides the following information: Capital Structure Percentage Pre-Tax Cost Debt 40% 5.5% Preferred Equity 10% 9% Common Equity 50% 12.7
Patton Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. It's before tax cost of debt is 12%, and it's marginal taz rate is 40%. The current stock price is Po= $22.50. The last dividend was Do=$2.00, and it is expected to grow at a constant rate of 7%. What is the cost
BE4-6 During 2007 Lebron James Company changed from FIFO to weighted-average inventory pricing. Pretax income in 2006 and 2005 (James's first year of operations) under FIFO was $160,000 and $180,000, respectively. Pretax income using weighted-average pricing in the prior years would have been $145,000 in 2006 and $170,0
Please explain how to calculate the weighted average cost of capital and how it compares to divisional cost of capital approach. Thank you. Currently, Red Sun, Inc.'s capital structure is 65% equity based and 35% debt based. Red Sun is in the 20% marginal tax bracket in Japan and has a cost of equity of 12% and an average deb
Milton Parker has a capital structure that consists of $7 million of debt, $2 million of preferred stock, and $11 million of common equity, based upon current market values. Parker's yield to maturity on its bonds is 7.4%, and investors require an 8% return on Parker's preferred and a 14% return on Parker's common stock. If the
Dear OTA, Can you please help me with this assignment. Please answer questions #1-5 & #9-11. Please use the attached excel spreadsheet to support the analysis. Thanks
You retire in 25 years and you presently have $400,000 but you estimate that you need $1,750,000 by the time you retire. What interest rate do you need to earn to reach your goal. What is the future value of an ordinary annuity that pays $1000 each 6 months and pays 9.0% interest for 20 years. What if this were an annuity du
WACC A company has determined that its optimal capital structure consists of 30 percent debt and 70 percent equity. Given the following information, calculate the firm's weighted average cost of capital. Rd = 6% Tax rate = 35% P0 = $35 Growth = 0% D0 = $3.00
A company has determined that its optimal capital structure consists of 30 percent debt and 70 percent equity. Given the following information, calculate the firm's weighted average cost of capital. Rd = 6% Tax rate = 35% P0 = $35 Growth = 0% D0 = $3.00
Larsen Company adds materials at the beginning of the process in Department L. Data concerning the materials used in May production are as follows: WIP at May 1 - 12,000 Started during May - 32,000 Completed and transferred out during May - 33,000 Normal Spoilage during May - 3,000 WIP May 31 - 8,000 Using the wei
Shine and Glow Company (S&G) uses only debt and equity. It can borrow unlimited amounts at an interest rate of 12 percent so long as it finances at its target capital structure, which calls for 45 percent debt and 55 percent common equity. Its last dividend was $2.40, its expected constant growth rate is 5 percent, and its stock
Goff Computer, Inc (GCI): Determine the cost of capital You have recently been hired by Goff Computer, Inc (GCI), in the finance area. GCI was founded eight years ago by Chris Goff and currently operates 74 stores in the Southeast. GCI is privately owned by Chris and his family and had sales of $97 million last year. GCI
Fuerst Cola has 10,000 bonds and 400,000 shares outstanding. The bonds have a 10% annual coupon, $1,000 face value, $1,050 market value, and 10-year maturity. The beta on the stock is 1.30 and its price per share is $40. The riskless return is 6%, the expected market return is 14%, and Fuerst Cola's tax rate is 40%. a.What i
(Calculating the WACC) The required return on debt is 8%, the required return on equity is 14%, and the marginal tax rate is 40%. If the firm is financed 70% equity and 30% debt, what is the weighted average cost of capital? Please show how you got your answer in excel.
Problem 10-1 --> Payback Three separate projects each have an initial cash outlay of $10,000. The cash flow for Peter's project is $4,000 per year for three years. The cash flow for Paul's Project is $2,000 in years 1 and 3 and $8,000 in year 3. Mary's Project has a cash flow of $10,000 in year 1, followed by $1,000 each yea
The JBH Corp expects to pay a dividend next year of $2.22. It expects its cash dividends to grow 5% per year forever. JBH has a debt ratio of L = 35%. Its borrowing rate is rd =9%. JBH pays corporate taxes at the rate of 30%, rf = 6%, rm = 12%, and JBH's common stock is currently selling for $20 per share. Answer the below quesi
You are employed by CGT, a Fortune 500 firm that is a major producer of chemicals and plastics, including plastic grocery bags, styrofoam cups, and fertilizers. You are on the corporate staff as an assistant to the CFO. This is a position with high visibility and the opportunity for rapid advancement, providing you make the ri
Suppose a firm estimates its WACC to be 10 percent. Should the WACC be used to evaluate all of its potential projects, even if they vary in risk? If not, what might be "reasonable" costs of capital for average-, high-, and low-risk projects?
Answer the below questions with at least five sentences each, >>>thoroughly and in your own words<<< ? What impact does the globalization of capital markets have on a manager's estimate of an appropriate cost of capital used to estimate the value of a subsidiary headquartered in a foreign country? ? What are the characteri
ADB Corporation is considering building a new facility in Texas. To raise money for the capital projects, the corporation plans the following capital structure: 30% of money will come from issuing bonds, and 70% will come from Retained Earnings or new common stock. The corporation does not currently have preferred stock.
1. The Kimberly Corporation is a zero growth firm with an expected EBIT of $100,000 and a corporate tax rate of 30%. Kimberly uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%. What is the firm's cost of equity? A) 21.0% B) 23.3% C) 25.9% D) 28.8% E) 32.0% 2. Leak In
I have to answer the questions below. In light of Time Warner's current operations, as well as trends in the national economy and the organization's industry, what changes, if any, would you recommend in Time Warner's approach towards determining its cost of capital? How would you adjust the discount rate for riskier project
Barnes' Brothers has the following data for the year ending 12/31/07: Net income = $600; Net operating profit after taxes (NOPAT) = $700; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Total operating capital = $2,100. Barnes' weighted average cost of capital is 10%.
Stock A has an expected return of 10% per year and stock B has an expected return of 20%. If 30% of the funds are invested in stock A, and the rest in stock B, what is the expected return on the portfolio of stock A and stock B? Justify your answer.