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
Define Weighted Average Cost of Capital (WACC)? What are the components? Why is WACC important? Impact?
What is meant by Weighted Average Cost of Capital (WACC)? What are the components of WACC? Why is WACC a more appropriate discount rate when doing capital budgeting? What is the impact on WACC when an organization needs to raise long term capital?
Calculate Wishing Well's WACC. Assume that the book and market values of Wishing Well's debt are the same.
Table 20.3 shows a book balance sheet for the Wishing Well Motel chain. The company's long-term debt is secured by its real estate assets, but it also uses short-term bank financing. It pays 10% interest on the bank debt and 9% interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $90
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
How might the corporate WACC be affected by the size of a firm's capital budget?
The A. J. Croft Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. AJC's current cost of equity is 8.8%, and its tax rate is 40%. The firm has 10,000 shares o
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
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
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.
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
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
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.
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
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
1. The cost of capital should reflect the average cost of the various sources of long-term funds a firm uses to acquire assets. a. True b. False Answer: ___________ _________________ 2. The cost of common stock is the rate of return the marginal stockholder requires on the firm's common stock.
1. Which of the following statements is CORRECT? a. An investor can eliminate virtually all market risk if he or she holds a very large and well diversified portfolio of stocks. b. The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio. c. It is impossible to have
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