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 (W
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?
What does a company's cost of capital represent and how is it calculated? How do market rates and the company's perceived market risk impact its cost of capital, and how does the company's debt to equity mix impact this cost of capital? You are leading the review of these elements in a meeting with managers and accountants.
Project 1- cost-$2,000 Rate of Return 16.00% project 2- cost-$3,000 Rate of Return 15.00% project 3- cost-$5,000 Rate of Return 13.75 % project 4- cost-$2,000 Rate of Return 12.50% The company estimates that it can issue debt at a before tax cost of 10 percent, and its tax rate is 30 percent.
Draco Paints makes an environmentally sound paint. The following data are available for the month of April: Percentage Units Complete Costs Beginning WIP inventory, April ............................ 11,000 Direct materials................................................ 75% $ 3,200 Conversion costs .......................
WEIGHTED AVERAGE COST OF CAPITAL If Wild Widgets, Inc., (WWI) were an all-equity firm, it would have a beta of 0.9.WWI has a target debt-to-equity ratio of 0.50. The expected return on the market portfolio is 16 percent, and Treasury bills currently yield 8 percent per annum. WWI one-year,$1,000 par value bonds carry a 7 perc
What is the weighted-average cost of capital for the company's assets and operations if the company does not pay any taxes?
A long-term bond has been issued with a market value of $50 million and an expected return of 9%. The company has 4 million shares outstanding trading for $10 each. At this price the shares offer an expected return of 17%. What is the weighted-average cost of capital for the company's assets and operations if the company does
How to compute weighted average number of common shares outstanding to be reported on comparative statements. How to compute the basic earnings per share to be reported on comparative statements.
3. What is the percentage total return on a stock that had an initial price of $70 per share, paid a dividend of $2.50 per share for the year, and had an ending price for the year of $74.50? 5. What is the expected rate of return on a portfolio where 20% is invested in Stock X, 30% in Stock Y, and 50% in Stock Z if
1. Finegan Services Ltd. has the following year end balance: ($000) Cash $1,000 A/P $500 A/R 3,500 Accruals 2,000 Inventory 10,000 Long-Term Debt 15,000 Net Fixed Assets 23,000 Common Equity 20,000 Total Assets $37,500 Total Liabilities $37,500 FSL's fixed assets are currently being used at
Tundra Corporation is interested in acquiring Tantrell Corporation. Tantrell has 2 million shares outstanding and a target capital structure consisting of 40 percent debt. The debt interest rate is 8 percent. Assume that the risk-free rate of interest is 3 percent and the market risk premium is 7 percent. Tantrell's fr
A Company finances its projects with 40% debt, 10% preferred stock, and 50% common stock. - The company can issue bonds at a YTM of 8.4%. - The cost of preferred stock is 9%. - The risk-free rate is 6.57%. - The market risk premium is 5%. - Johnson Industries' beta is equal to 1.3. - Assume that the firm will be able to
If a company finances its projects with 40 percent debt, 10 percent preferred stock, and 50 percent common stock. 1) The company can issue bonds at a yield to maturity of 8.4 percent. 2) The cost of preferred stock is 9 percent. 3) The company's common stock currently sells for $30 a sh
Total assets $3,000 million Tax rate 40% Operating income (EBIT) $800 million Debt ratio 0% Interest expense $0 million WACC 10% Net income $480 million M/B ratio 1.00x Share price $32.00 EPS = DPS $3.20 The company has no growth opportunities (g = 0), so the company pays out all of its earnings as dividends (EPS
Production Cost Report - Weighted Average Method. Problem 8.42 Nader Paints makes an environmentally sound paint. The following data are available for the month of April: Beginning WIP inventory, April Direct materials Conversion costs Units started in April Costs incurred in April: Direct materials Conversion
What kind of recommendation would you give for determining the costs of capital?
Exercise 4-8 - Equivalent Units and Cost per Equivalent Unit - Weighted-Average Method (L02, L04) Solex Company produces a high-quality insulation material that passes through two production processes. A quantity schedule for June for the first process follows: Quantity Schedule Units to be accounted for: Work
The following tabulation gives earnings per share figures for the Knerr Company during the preceding 10 years. The firm's common stock, 7.8 million shares outstanding, is now (1/1/2003) selling for $65 per share and the expected dividend at the end of the current year (2003) is 55 percent of the 2002 EPS. Because investors expec
Factors that should determine the appropriate required return on this investment opportunity in China.
China is fast becoming a manufacturing superpower. High-tech companies, such as computer chip manufacturers, and low-tech companies, such as textile manufacturers, have built manufacturing facilities in China. Assume that you are CFO of an automobile manufacturer looking to build a $400 million (U.S.) plant in China. Discuss the
You have been given the following projections for Moon Corporation for the coming year. Sales = 10,000 units Sales price per unit = $10 Variable cost per unit = $5 Fixed costs = $10,000 Bonds outstanding = $15,000 rd on outstanding bonds = 8% Tax rate = 40% Sha