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
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
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 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
Earnings per share in 2007 was $2.82, and in 2002 it was $1.65. The company's payout ratio is 30%, and the stock is currently valued at $41.50. Flotation costs for new equity will be 15%. Net income in 2008 is expected to be $15 million. The market-value weights of the firm's debt and equity are 40% and 60% respectively.
During the last few years, Cox Technologies has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program that had been proposed by the marketing department. Assume that you a
Masco Oil and Gas company is very large with common stock listed in the NYSE and bonds traded over the counter, As the current balance sheet, it has three bond issues outstanding. 1. 150 mil of 10 percent series.................2015 2. 50 mil of 7 percent series...................2009 3. 75 mil of 5 percent series.......
Dilbert has recently taken a course in financial management and has learned the following: The cost of debt, rd, is normally less than the cost of equity, rs. Consider a firm which has no debt. If the firm is an all equity firm (i.e. it has no debt), (1) what is the relationship between the weighted average cost of capital (WAC
LaVigne Wineries. Capital Budgeting Case LaVigne Wineries is capitalized as follows: Book Value Market Value Senior Bonds, coupon 10%, semi- $3,000,000 $3,714,173.27 annually, mature late 2016 Junior bonds, coupon 7%, semi- $2,000,000 $1,875,497.36 annually, mature late 2021 Common Stock, par valu
Backhaus Beer Brewers (BBB) just announced that the current fiscal year's income statement reports its net income to be $1.2 million. BBB's marginal tax rate is 40 percent, and its interest expense for the year was $1.5 million. The company has $8.0 million of invested capital, of which 60 percent is debt. In addition, BBB tr
Please help with the following problem. Blues Inc. is an MNC (Multinational Corporation) located in the United States. Blues would like to estimate its weighted average cost of capital. On average, bonds issued by Blues yield 9 percent. On average, bonds issued by Blues yield 9 percent. Currently, T-bill rates are 3 perc
A Corp. has no debt but can borrow at 8 %. The firm's WACC is currently 12% and has tax rate of 35%. a. What is the cost of equity? b. If the Corp. converts to 25 % debt,what will cost of equity be? 50 %? c. What is shadow's WACC for part b: 25 % and 50 %.
Look at the information below about Burgundy Basins, a sink manufacturer. Equity Shares outstanding 15 million Stock price per share $25.00 Yield to maturity on debt 7% Book value of interest-bearing debt $255 million Coupon interest rate on debt 5% Market value of debt $250 million Book value of equity
The following table give EPS figures for the "B" Company during the preceding 10 years. The firm's commons stock - 7.8 million shares outstanding - is currently (January 1, 2008) is 55 percent of the 2008 EPS. Because investors expect past rends to continue, g can be based on the earnings growth rate. Nine years of growth fol
Finest Products, Inc. has an optimal capital structure of 30% debt, 10% preferred stock, and 60% common equity. The firm has an after-tax cost of debt of 8%, and can sell as much debt as it wants at this rate. The firm's preferred stock is currently selling for $110 per share and pays a $10 dividend. Finest's common stock is
Refer to problem 18. Suppose Big Oil borrows an additional $200 million from the bank, paying 12.6 percent interest. It then pays out a special $200 million dividend, leaving its assets and operations unchanged. What happens to Big Oil's WACC, still assuming it pays no taxes? What happens to the cost of equity?