Compute, compare and discuss the Economic Value Added (EVA) and the Market Value Added (MVA) for 1. IBM ? Risk Free rate of 5.0% (30 Year U.S. Treasury Bond) ? Equity premium, 4.0% ? Betas can be found on Yahoo Finance, MSN Money, or Hoovers. 2. HP ? Risk Free rate of 5.0% (30 Year U.S. Treasury Bond) ? Eq
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
Your firm has expected earnings before interest and taxes of $1,700. Your unlevered cost of capital is 11% and your tax rate is 33%. You have debt with a book and a face value of $2,500. This debt has an 8% coupon and pays interest annually. What is your weighted average cost of capital?
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 corporation wants to calculate its weighted average cost of capital. It has $500 million B-rated bonds at an average rate of 5.43%, 374 million shares of common stock outstanding @ $1 par, and retained earnings of $230 million. The expected rate of return in the stock market for equities of similar risk and characteristics i
6 percent coupon rate, semi-annual payment, 1,000 par value bond which matures in 30 yrs sells at 515.16. Tax is 40%. So Far I know T=40% M=1,000 rd(1-T)= 6%(1-.40) = 3.6% Calculator solve I did N=30 PMT=120 (6% of 1,000 x 2) FV= 1,000 PV=-515.16 solve for I/Y you get =23.3345. I know the answer is 7.2% but im not sure what form
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
Suppose a firm estimates its cost of capital for the coming year to be 10 percent. What are reasonable costs of capital for evaluating average-risk projects, high-risk projects, and low-risk projects?
Please show all details so that I can apply this in my company. Johnson Corporation is estimating its WACC. Its target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,000. Th
How can a company reduce its weighted average cost of capital? What is the difference between operating and financial leverage? Can there be too much financial leverage in a firm? Why or why not?
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
Calculate the weighted average cost of capital for the Luxury Proclain Company. The book value of Luxury's outstanding debt is $60 million. Currently, the debt is trading at 120 percent of book value and is priced to yield 12 percent. The 5 million outstanding shares of Luxury stock are trading at $20 per share. The required ret
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
Calculate the weighted average cost of capital for the Luxury Porcelain Company. The book value of Luxury's outstanding debt is $60 million. Currently the debt is trading at 120% of book value and is priced to yield 12%. The 5 million outstanding shares of Luxury stock are trading at $20 per share. The required return on Luxury
Calculate the after-tax cost of funds and the WACC for the following: Common Stock Preferred Stock Debt (annual coupon) Last Dividend $3.85 $1.50 Coupon Rate 9% Market Value $45 $13.00 Maturity 20 Growth Rate 5% Market Value $1,100.00 Flotation Costs 3% 3% Flotation Costs 3
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
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.
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