Ajax sells three products: X, Y and Z. Budgeted information for the upcoming accounting period follows: PRODUCT SALES (units) PRICE VARIABLE COSTS X 16,000 $15. $9 Y 22,000 10. 6 Z 38,000 11.
a. What is meant by Weighted Average Cost of Capital (WACC)? b. What are the components of WACC? c. Why is WACC a more appropriate discount rate when doing capital budgeting? d. What is the impact on WACC when an organization needs to raise long term capital?
Multiple Choice Questions in International Finance, Cost of Capital: securities, cost of equity capital, Insurance for political risk, premium, WACC
44. The most preferred form of securities for funding by firms in the U.S. is A) debt B) preferred stock C) common stock D) stock derivatives 47. Which one of the following new issues of stock has the greatest probability of lowering its cost of equity capital? A) Microsoft in the New York markets B) Toyota on the Tok
3. Given that the traction corporation has a 40% debt, 60% equity capital structure and its WACC is 9.96%, find the required rate of return on equity. It is mentioned that the cost of debt before tax equals 9%, the tax rate is 40%. (Points: 2) 11.06% 13% 14.89% 8% The informatio
A firm has determined its cost of each source of capital and optimal capital structure, which is composed of the following sources and target market value proportions: Source of Capital Target Market Proportions After-Tax Cost Long-term debt 45% 5% Preferred
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, 100
The following monthly data are available for the W.K. Kent Company when it sold 20,000 units of Product A and 5,000 units of Product B: Sales $220,000 $80,000 $300,000 Variable expenses 120,000 64,000
Midwest Chemicals manufactures a product called Mid-Tek. Direct materials are added at the beginning of the process and conversion activity occurs uniformly throughout production. The beginning work-in-process inventory is 60% complete with respect to conversion; the ending work-in-process inventory is 20% complete. The followin
Can you please describe how the weighted average cost of capital (WACC) is calculated for General Electric. Can you evaluate the effectiveness of this approach. Please be detailed. Also, if you can direct me to any websites or reference material on how General Electric calculates its WACC, that would be great.
CALCULATION OF A WACC PROBLEM 1. The following data pertains to Vandelay Industries and the financial markets in general: § Their equity beta is 1.2. § The expected return on the stock market is 10%. § Their equity has a market value 4 times as large as its book value. § Their long-term debt consists of 30-year bonds rated BB. § Their ratio of long-term debt to equity (based on book values) is 1.0. § They use short-term (one-year) debt equal to 50% of their long-term debt. The short-term debt is also rated BB. § The Treasury bond yield curve is flat at 4% for all maturities. § Their tax rate is 30%.
1. The following data pertains to Vandelay Industries and the financial markets in general: § Their equity beta is 1.2. § The expected return on the stock market is 10%. § Their equity has a market value 4 times as large as its book value. § Their long-term debt consists of 30-year bonds rated BB. § Their ratio of lo
Wren Manufacturing is in the process of analyzing its investment decision-making procedures. The two projects evaluated by the firm during the past month were projects 263 and 264. The basic variables surrounding each project's analysis, using IRR decision technique, and the resulting decision actions are summarized in the attac
Please see attachment attached k = W1Kd + W2Kp + W3Ke 1. A firm's current balance sheet is as follows: Assets $100 Debt $10 Equity $90 a. What is the firm's weighted-average cost of capital at various combinations of debt and equity, given the following information? Debt/Assets After-Tax Cost of Debt Cost of Equi
Individual Assignment Problem 3 Chapter 21 - Basic Finance by Herbert Mayo A. What is the firm's weighted-average cost of capital at various combinations of debt and equity, given the following information? B. Construct a pro forma balance sheet that indicates the firm's optimal capital structure. Compare this balance she
1. An analyst has acquired the following information regarding Company A and Company B: ? Company A has a higher net cash flow than Company B. ? Company B has higher net income than Company A. ? Company B has a higher operating cash flow than Company A. ? The companies have the same tax rate, the same level of c
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 percent annual coupon and are currently s
See Attached. 1) Suppose 1 Danish krone can be purchased in the spot market for $0.14 today. If the krone appreciated against the dollar by 10% tomorrow, how many krones would a dollar buy tomorrow? 2) Suppose one British pound can purchase 1.82 U.S. dollars today in the foreign exchange market, and currency forecasters
What is meant by Weighted Average Cost of Capital (WACC)? What is the impact on WACC when an organization needs to raise long term capital?
Find the beta for Pfizer company use: http://finance.yahoo.com/q/ks?s=AIG Estimate your company's cost of equity. Estimate your company's weighted-average cost of capital. Estimate your company's unlevered cost of equity. Show your calculations in an Excel document. Be sure to label each calculation clearly.
MM with and without Taxes International Associates (IA) is just about to commence operations as an international trading company. The firm will have book assets of $10 million, and it expects to earn a 16% return on these assets before taxes. However, because of certain tax arrangements with foreign governments, IA will not p
A firms current balance sheet is as follows: Assets $100 Debt $10 Equity $90 What is the firm's weighted average cost of capital at various combinations of debt and equity, given the following information? Show work Debt/Assets After tax cost of debt Cost of equity Cost of Capital 0%
Could someone help to explain how cost of debt, cost of equity, and weighted average cost of capital are determined?
From the following data, calculate the cost of capital for operations (WACC). Use the Capital Asset Pricing Model to estimate the cost of equity capital.Please show work as this is being used as a study guide. U.S Government long-term bond rate 4.3% Market risk premium 5.0% Equity bet
Scenario You are a financial analyst in the finance division of Strident Marks, a manufacturer of athletic equipment and apparel, which has recently gone through the initial public offering (IPO) process and has become a public company. Strident Marks has annual sales revenue of approximately $50 million and makes seven unique
The market value of XYZ Corporation's common stock is 40 million and the market value of the risk-free debt is 60 million. The beta of the company's common stock is 0.8, and the expected market risk premium is 10%. If the Treasury bill rate is 6%, what is the firm's cost of capital? (Assume no taxes.)
1. You were hired as a consultant to Keys Company, and you were provided with the following data: Target capital structure: 40% debt, 10% preferred, and 50% common equity. The after-tax cost of debt is 4.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 11.50%. The firm will not be issuing any new stock. What is the firm's WACC?
1. You were hired as a consultant to Keys Company, and you were provided with the following data: Target capital structure: 40% debt, 10% preferred, and 50% common equity. The after-tax cost of debt is 4.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 11.50%. The firm will not be issuing any new sto
Weighted Average Method Durall Company manufactures a plastic gasket that is used in automobile engines. The gaskets go through three processing departments: mixing, forming, and stamping. The company's accountant (who is very inexperienced) has prepared a summary of production and costs for the forming department as follows
Bolero has compiled the following information on its financing costs: Type of Financing Book Value Market Value Cost Long-term debt $5,000,000 $2,000,000 10% Short-term debt $5,000,000 $5,000,000 8% Common Stock $10,000,000 $13,000,000 15% Total $20,000,000 $20,000,000
Brooks Enterprises has never paid a dividend. Free cash 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 terminal or horizon value of operations? b)
Marginal cost of capital (WACC) above and below the break points in the MCC: A company has been growing at a constant rate of 8% a year. Its retained earnings for the year are $16 million, common stock is selling for $60, and the current debt to assets ratio is 35%. The company can raise up to $18 million in debt at 8%. A 12% interest will apply if the amount exceeds $18 million. New common stock yields the firm $45. The required rate of return on retained earnings is 12%.The tax rate is 40%. Calculate the marginal cost of capital (WACC) above and below the break points in the MCC schedule.
A company has been growing at a constant rate of 8% a year. Its retained earnings for the year are $16 million, common stock is selling for $60, and the current debt to assets ratio is 35%. The company can raise up to $18 million in debt at 8%. A 12% interest will apply if the amount exceeds $18 million. New common stock yields
Please see attached file. How would each of the following affect a firm's cost of debt, rd(1-T); its cost of equity, rs; and its weighted average cost of capital, WACC? Indicate by a plus (+), a minus (-), or a zero (0) if the factor would raise, lower, or have an indeterminate effect on the item in question. Assume other t