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
A few problems related to business finance. Problem Set 3: Ross: Chapter 3 - Problems: 3.2, 3.4 3.2 Cheryl Colby, the CFO of Charming Florist Ltd., has created the firm's pro forma balance sheet for the next fiscal year. Sales are projected to grow at 10 percent to the level of $330 million. Current assets, fixed assets,
1. In March 2004, Fly Paper's stock sold for about $73. Security analysts were forecasting a long-term earnings growth rate of 8.5 percent. The company is expected to pay a dividend of $1.68 per share a. Assume dividends are expected to grow along with earnings at g 8.5 percent per year in perpetuity. What rate of return r wer
WACC or weighted average cost calculation 20. Carr Auto Parts is trying to calculate its cost of capital for use in a capital budgeting decision. Mr. Horn, the vice-president of finance, has given you the following information and has asked you to compute the weighted average cost of capital. The company currently has outsta
Please show formulas and solution on how to complete this one. Thanks A company's balance sheets show a total of $30 million long-term debt with a coupon rate of 9 percent. The yield to maturity on this debt is 11.11 percent, and the debt has a total current market value of $25 million. The balance sheets also show th
Alpha Signmaking, the leading producer of laminated sign making equipment, spent 2 years and $3 million dollars developing a new semiautomatic signmaker. In 1988, the company was ready to make a decision about placing the new signmaker into production. This signmaker would fill the gap between a manual unit selling for $1,000
What is the relationship between hurdle rate and Weighted Average Cost of Capital (WACC)? Which type of risk is more difficult to minimize: systematic or unsystematic? Why? Given the choice, being a small business owner, having experienced success in the local market, and wishing to expand company operations on a greater s
On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $30 million in new projects. The firm's present market value capital structure, shown below, is considered to be optimal. Assume that there is no short-term debt. Debt $30,00
Calculate the WACC for a firm with a debt-equity ratio of 1.5. The debt pays 6% interest and the equity is expected to return 8%. Assume a 35% tax rate and risk-free debt.
The CEO needs you to calculate the company's weighted-average cost of capital (WACC). In addition to calculating the WACC, the CEO wants you to explain how the capital structure would need to change if the firm wanted to reduce its cost of capital. The CEO believes the company needs a split of 25% debt to 75% equity to have an o
Elliott Athletics is trying to determine its optimal capital structure, which now consists of only debt and common equity. The firm does not currently use preferred stock in its capital structure, and it does not plan to do so in the future. To estimate how much its debt would cost at different debt levels, the company's treasur
12. The Horizon Company will invest $60,000 in a temporary project that will generate the following cash inflows for the next three years. Year Cash Flow 1. . . . . . . . . $15,000 2. . . . . . . . . 25,000 3. . . . . . . . . 40,000 The firm will also be required to spend $10,000 to close down the project at the end o
(See attached file for full problem description with diagrams) --- 1. Wilson & Associates capital structure is as follows: The after-tax cost of debt is 6.5%; the cost of preferred stock is 10%; and the cost of common equity (in the form of retained earnings) is 13.5%. Calculate the weighted average cost of capital
Please help with the following: Brook's Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively, and after the second year it is expected to grow at a constant rate of 8%. The company's weighted average cost of capital is WACC= 12% a) What is the te
You are given the following net cash flows: Year Net Cash Flow ______ ______________ 0 $ 0 1 $ 1 2 $ 2,000 3 $ 2,000 4 $ 2,000 5 $ 0 6
What is the weighted average cost of capital for a firm in the 35% corporate tax bracket, with the following: Financing Amount Rate of Interest for each. Equity $ 1,150,000 11.57% Debt $
WACC= (wd)(rd)(1-Tc)+(We)(re)+(Wp)(rp) Wd = weight of debt in a firm's capital structure rd = rate being paid for the firm's use of debt monies (marginal cost) Tc = corporate tax rate We = weight of equity re = rate of equity (sometimes calculated in CAPM) Wp = weight of preferred rp = rate being paid on preferred stock
I'm confused on this problem. I know you are supposed to get the cost(aftertax), multiply by the weight to get the weighted cost. Then add the weighted costs to arrive at the weighted average cost of capital. Smith and Jones Widget Company has total capital, consisting of long-term debt and common equity of $80 million. Thirt
The corporation has no debt but can borrow at 7%. The firms WACC is currently 10% with no corporate tax. 1. So what's the cost of equity? 2. Whats the cost of equity at 30% or 60% and what's the WACC? Thanks for the help!
The question looks at accepting projects, profitability of a planned project, cost of capital, and convertible bonds.
1. The ABC Co. has no debt in its capital structure, a beta of 0.8, and raises all funds through sale of common stock. The current market rate for similar stock is 14% and the risk-free rate is 6%. The firm is considering a project with a return of 12.9%. Should it accept the project, and if so why (Show all work). 2. You ha
This is a graduate level problem and you must explain how you get each answer fully which includes the calculations. Please answer all 3 questions!
Poulsbo Manufacturing, ZInc. is currently an all-equity firm that pays no taxes. The market value of the firm's equity is $4 million. The cost of this unlevered equity is 15 percent per annum. Poulsbo plans to issue $700,500 in debt and use the proceeds to repurchase stock. The cost of debt is 4 percent semi-annually. A. Afte