Share
Explore BrainMass

Weighted Average Cost of Capital (WACC)

Using the WACC equation

Question 1: Company with a target structure of 60% debt and 40% common equity, with no preferred stock. The firm's cost of common equity is 12.5% and its WACC is 8.780%. If the firm's tax rate is 30% what is the before tax yield on this company's long term debt? A. 8.4% B. 9.0% C. 9.8% D. 8.2% E. 9.4% Question 2: Th

Computing The Weighted Average Cost of Capital.

The following is on a balance sheet Current Asset: $3,600 Fixed Asset: $6,400 Total Assets: $10,000 Debt: $5200 Preferred Stock: $600 Common equity $4200 Total liabilities and equity: $10,000 The market value of debt, preferred stock, and common equity equals its book value. Cost of debt is 8.0%, it cost o

Capital Structure Concepts for Arrow Technology

Arrow Technology, Inc. (ATI) has total assets of $10,000,000 and expected operating income (EBIT) of $2,500,000. If ATI uses debt in its capital structure, the cost of this debt will be 12 percent per annum.

Total float, average float and weighted average delay

Your neighbor goes to the post office one a month and picks up two checks, one for $13,000 and one for $4,000. The larger check takes four days to clear after it is deposited; the smaller one takes five days. a. What it the total float for the month? b. What is the average daily float? c. What are the average daily receipt

Goals, Ratios, Investments, Budgets, Planning, PV and WACC

MULTIPLE CHOICE. Choose the one answer for the question. 1. Which of the following is true of an efficient market? a. 0 There is one seller b. 0 There is one buyer c. 0 Stock exchanges are always open d. 0 There is always a low brokerage fee e. 0 Information is reflected in security prices immediately 2. Which of

Beckman Engineering (BEA): share price, repurchase, weighted cost of capital

Beckman Engineering and Associates (BEA) has 25 million shares outstanding. Shares are trading at $8.00. BEA management plans to raise $60 million to by issuing debt to repurchase shares. Suppose that BEA is an all equity firm before the debt issue, it is subject to 36% corporate tax rate, its cost of debt is 5% and equity co

Value of operations.

Please see attached. Please work out in steps. H Corp is a growing company. Analysts project the following free cash flow during the next 2 years, after which FCFs are expected to grow at a constant 5% rate. H Corp cost of capital is WACC = 10 %. Time 1 2 3 FCF 50 75 a. What is the terminal or horizon value at year 2? b. W

Cost of Kd Kp Ke

Zinger Corporation manufactures industrial type sewing machines. Zinger Corp. received a very large order from a few European countries. In order to be able to supply these countries with its products, Zinger will have to expand its facilities. Of the required expansion, Zinger feels it can raise $75 million internally, through

M&M Proposition and Debt-Equity Ration

A company has an expected EBIT of $45,000 in perpetuity and a tax rate of 35%. The firm has $80,000 in outstanding debt at an interest rate of 9% with an unleveled cost of capital of 14%. What is the value of the firm according to M&M proposition 1 with taxes? Should they change their debt-equity ration if the goal is to maxi

Repurchasing and Recapitalization

A company expects its EBIT to be $85,000 every year forever. The firm can borrow at 11%. They currently have no debt and their cost of equity is 18%. If the tax rate is 35% what is the value of the firm? What will the value be if they borrow $60,000 and use the proceeds to repurchase shares? What is the cost of equity after reca

Leverage and WACC for ABC Co. and XYZ Co.

ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all equity financed with $800,000 in stock. XYZ uses both stock and perpetual debt. Its stock is worth $400,000 and the interest rate on its debt is 10%. Both firms expect EBIT to be $90,000. Ignore Taxes. Rico owns $30,000 wort

Calculations for Finding the WACC

Find the WACC for a company with a tax rate of 35% Debt: 5,000 7% coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 92% of par, the bonds make semiannual payments. Common Stock: 100,000 shares outstanding, selling for $57 per share, the beta is 1.15 Preferred Stock: 13,000 shares of 7% prefer

IRR can be less than WACC; which case is rejected

10) Thompson stores is considering a project that has the following cash flow data. What is the projects IRR. Note that the projects projected IRR can be less than WACC (and even negative), in which case it will be rejected. YEAR CASH FLOW 0 (1000) 1

Project has normal cash flows

Assume a project has normal cash flows. All else equal, which of the following statements is correct? -The projects IRR increases as the WACC declines - The projects NPV increases as the WACC declines - The projects MIRR is unaffected by changes in WACC -The projects regular payback increases as the WACC declines

Capital Structure in a Perfect Market

Mike's Motors has 30 million shares outstanding with a price of $15 per share. In addition, Mike has issued bonds with a total current market value of $150 million. Suppose Rumolt's equity cost of capital is 10%, and its debt cost of capital is 5%. a. What is Mike's pretax weighted average cost of capital? Pretax weighted a

Stock Transactions: Weighted Average Number of Shares

X Co. had the following stock transactions during the fiscal year ended June 30, 20X4: Beginning stick balance, July1, 20X3 100,000 shares 2:1 stock split, September 30, 20X3 Issuance of additional shares, January 1, 20X4 50,000 shares Repurchase of shares, June 23, 20X4 1,040 shares

WACC Components

Part A. Cost of Debt - Micro Spinoffs Inc., issued 20 year debt a year ago at coupon rate at 8 percent annually. Today the debt is selly at $1050. If the firms tax bracket is 35%, what is the afer-tax cost of the debt? Part B. Cost of Preferred Stock - Micro Spinoffs also has preferred stock that is outstanding. The st

Computing the Weighted Average Cost of Capital.

A) Suppose a company has bonds of $600,000, preferred stock of $100,000 and common stock of $300,000. The after tax cost of tax is 6%, preferred stock is 8%, and common stock is 12%. What is the WACC? B) Suppose a company has bonds of $600,000, preferred stock of $100,000 and common stock of $300,000. The before tax cost o

Multinational Finance

Can anyone assist with this review questions. Just trying to double check my stuff. Thanks! 1. LipTea Incorporated purchases raw materials and has processing plants around the world. The standard deviation of the firmâ s equity returns is 1.2 times as great as the marketâ s standard deviation of returns. If the correlati

Pendant, Inc: Weighted Average Cost of Capital

The treasurer at Pendant, Inc. is estimating the company's weighted average cost of capital. Everyone in the company evaluating capital investments will use this estimate of WACC. The financial information is as follows: The company's 6.5% coupon rate bonds pay annual interest, mature eight years from now and sell on the New

Capital structure, debet verus equity

Should a company have more debt or more equity in its capital structure? Explain your answer. What are some limitations of utilizing debt versus equity in the capital structure?

Cost of Capital (WACC)

Please show calculations. The CFO has asked you to recompute the ABC's weighted average cost of capital based upon three different financing scenarios. Tax rate of 40%. Current financial structure is $4,500,000 debt at an average interest rate of 8.5% and common equity of $2,500,000 with a required return of 16%. Scena

JimMart: Weighted Average Cost of Capital (WACC)

A stock analyst has obtained the following information about JimMart, a large retail chain. (1) The company has non-callable bonds with 20 years maturity remaining and a maturity value of $1000. The bonds have a 12 percent annual coupon and currently sell at a price of $1273.8564. (2) Over the past four years, the returns

Whole Foods: WACC

Whole Foods Market is company with over $1 billion in annual sales. The firm, which operates under the ticker symbol WFMI uses bonds, preferred stock, and common stock for funding. - Whole Foods bonds each sell for $935, pay coupons of $20 every six months, and have 8 years remaining to maturity. The par value of the bonds

Brown Inc: WACC and Risk of Debt Financing

Brown Inc. has a capital structure consisting of $5,000,000 in long-term debt and $15,000,000 in common equity. The interest rate paid on the long-term debt is 7.5%. Brown Inc. is in the 35% tax bracket. On the common equity (stock) the firm pays an annual dividend of $1.10 and it expects to grow the dividend by 15 % per year fo

Capital Structure: 1) Graph (a) the relationships between capital costs and leverage as measured by D/V, and (b) the relationship between value and D. 2) Using the data given in part b, but now assuming that Firms L and U are both subject to a 40% corporate tax rate, repeat the analysis called for in b-(1) and b-(2) under the MM with-tax model.

The CEO of a company is worried about his company's level of debt financing. The company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other companies in the same industry average about 30% debt, while the CEO wonders why they use so much more debt and ho

WACC of Specific Capital Structure

What is the WACC of the following capital structure? 30% debt 20% preferred 50% common equity after tax debt 8% and the cost of preferred is 6.5% and the total retained earnings is 13.25 The firm will not issue new stock.