The venture investors and founders of ACE Products, a closely held corporation, are contemplating merging the successful venture into a much larger diversified firm that operates in the same industry. ACE estimates its free cash flows that will be available to the enterprise next year at $5,200,000. Since the venture is now in i
Beckwith Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 8%, and its stock price is currently $40 per share with 2, million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. EBIT is $14.933 mill
Pettit printing Company has a total market value of $100 million, consisting of 1 million shares selling for $50 per share and $50 million of 10% perpetual bonds now selling at par value. The firm's EBIT is $13.24 million, and its tax rate is 15%. Pettit can change its capital structure by either increasing its debt to 70% (base
You are provided the following information on a company. The total market value is $40 million. The capital structure, shown here, is considered to be optimal. Accounting Value Market Value Bonds, $1000 par, 7% coupon, 7% YTM $10,000,000 $10,000,000 Preferred Stock, 7%, $100 par, 1
Capital budgeting involves decisions about whether or not to invest in fixed assets, and it has a major influence on firms' future performances and values. Discounted cash flow analysis is used in capital budgeting, and a key element of this procedure is the discount rate used in the analysis. Capital must be raised to finance f
On June 28, 2001, Nike held an analysts' meeting to disclose its fiscal-year 2001 results. The information is presented in Exhibit 1 and 3.1 Anna Ford, an analyst from UBS Warburg, showed her forecast that Nike is overvalued at its current share price of $42.09 if the discount rate is 12 percent (see Exhibit 2). She had, how
First question: What is the proportion of debt financing for a firm that expects a 24% return on equity, a 16% return on assets, and a 12% return on debt? Ignore taxes. I understand that the answer is 66.7% I am using the WACC formula WACC = E/V * Re + D/V *Rd * (1-Tc) Where Re = Cost of equity; Rd = cost of debt; E= mark
I need help answering the following questions regarding the attached WACC calculations: 1. What does calculating the weighted average cost of capital tell you about Foust Company's financial strategy including the level of risk involved in the business? 2. How could the company use WACC calculations in determining future
The capital structure for Nealon, Inc., follows: Nealon, Inc., Balance Sheet TYPE OF FINANCING PERCENTAGE OF FUTURE FINANCING Bonds (8%, $1,000 par, 16-year maturity) 38% Preferred stock (5,000 shares outstanding, $50 par, $1.50 dividend) 15% Common stock 47% Total 100% Flotation costs are (a) 15 p
On January 1, 2007, Yarrow Corporation had 1,000,000 shares of common stock outstanding. On March 1, the corporation issued 150,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 600,000 of its own outstanding sha
Rooster, Inc. has 9 million shares of common stock outstanding. The current price is $52 per share. Rooster also has two bond issues outstanding. The first bond issue has a face value of $80 million, has an 8 percent coupon, and sells for 104 percent of par. The second issue has a face value of $50 million, has a 7.5% coupon
The common stock of William Tell Computers has a beta of .80. The treasury bill rate is 4 percent and the market risk premium is estimated at 8 percent. The company's capital structure is 30 percent debt paying a 8 percent interest rate, and 70 percent equity. The company's tax rate is 40 percent. a. What is the company's co
1. Your company's overall weighted average required rate of return is 10%. Its yogurt division is riskier than average, it's fresh produce division has average risk, and its institutional foods division has below-average risk. Your company adjusts for both divisional and project risk by adding or subtracting 2 percentage points.
A construction company has 20 year bonds outstanding. The bonds have an 8.5% annual coupon, a face value of $1,000, and they currently sell for $945. The company's stock has a beta equal to 1.20. The market risk premium (km - krf) equals 5%. The risk free rate is 6%. The company has outstanding preferred stock that pays a $2 ann
Overall I need to come up with an optimal financing/investment strategy for India..... The capital sources for India and need some help. Use foreign exchange rate and cost of capital to determine India's capital sources
Determine the Weighted Average Cost of Capital - Please explain me this in detail.
Capital Structure, Cost of equity, WACC, market value of the company after it issues the debt, market value of the company's equity after it issues the debt, cost of equity after it issues the debt, new WACC
XYZ limited has a capital structure of 100 % ordinary equity with 6,000,000 shares outstanding at current market price of $ 4.00. Its EBIT was $ 4,200,000. The company pays tax at 30%. Q 1. What is the current cost of equity in XYZ limited Q 2. What is the WACC Now suppose that the company sells $ 1,000,000 of long term deb
Determine the weighted average cost of capital (WACC) for the XYZ Company that will finance its optimal capital budget with $120 million of long-term debt (kd = 12.5%) and 180 million in retained earnings (ke = 16%). XYZ present capital is considered optimal. The marginal tax rate is 40%.
Problem 1 Global Technology's capital structure is as follows: Debt 35% Preferred stock 15 Common equity 50 The after tax cost of debt is 6.5 percent; the cost of preferred stock is 10 percent; and the cost of common equity (in the form of retained earnings) is 13.5 percent. Calculate Global Technology's weighted
Your firm has expected earnings before interest and taxes of $1,700. Your unlevered cost of capital is 11% and your tax rate is 33%. You have debt with a book and a face value of $2,500. This debt has an 8% coupon and pays interest annually. What is your weighted average cost of capital?
1. A company capital structure is Debt..........................35% Preferred stock...........15% Common equity..........50% The after-tax cost of debt is 6.5 percent; the cost of preferred stock is 10 percent; and the cost of common equity (form of retained earnings) is 13.5 percent. Calculate the weighted average cos
A corporation wants to calculate its weighted average cost of capital. It has $500 million B-rated bonds at an average rate of 5.43%, 374 million shares of common stock outstanding @ $1 par, and retained earnings of $230 million. The expected rate of return in the stock market for equities of similar risk and characteristics i
A publicly company is entirely financed with equity. Its WACC is 14% Management wishes to bring the plowback ratio from 0% to 100% and invest earning into a capital project that will return 12.5%. What will be the impact on management's new dividend policy? Options: - Moving the plowback ratio to 100% will add shareholde
The general rule for using the weighted average cost of capital in capital budgeting decisions is accept all projects with rates of return greater or equal to the WACC, less than the WACC, equal to or less than the WACC or positive rates of return
I) The craft company currently has $200,000 market value ( and book value) of perpetual debt outstanding carrying a coupon rate of 6 percent. Its earnings before inerest and taxes (EBIT) are $100,000, and it is a zero-growth company. Craft's current cost of equity is 8.8 percent, and its tax rate is 40 percent. The firm has 10,0
A firm has $2 million of capital needs. The firm has noticed that the current yield to maturity on its bonds is 9.5%, and its stock beta is 1.2. Currently, the expected return on the S&P 500 stocks is 12%, and the 90-day T-bill rate is 5%. The firm's target capital structure is 40% debt and 60% equity. The firm's marginal ta
Bane Industries has a capital structure consisting of 60 percent common stock and 40 percent debt. A debt issue of $1,000 par value, 8 percent bonds, maturing in 20 years and paying semiannually, will sell for $1,100. Flotation costs for the bonds will be $20 per bond. Current stock on the firm is currently selling at $80 per
Find weighted average of cost of capital, calculate after tax cost of new debt and common equity... Common stock 7.8 million shares outstanding-selling for $65 per share, expected dividend at end of current year is 55% of 7.80 EPS. Expect past trends to continue; g may be based on the growth rate, current interest rate on n
Use the DES model to value Manpower, Inc. (not Manpower International). a.I have attached the 10-year SEC data for Manpower Inc, for your use. Set up a DES spreadsheet model with these data. b. Construct a plausible set of assumptions to suggest how the market might be valuing the company (the price was approximately $
Assume you are CFO at a diversified company, and your Board has directed you to sell one of your business units. How do you determine your asking price? Discuss at least two or three approaches. NOTE: the business unit is not publicly traded. (By the way, apparently most business executives do not know the value of their p