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 %.
1) The Stroud Drilling Company from Stroud, Oklahoma is considering expanding into the mobile home business. The company is currently unlevered, but has a target debt/equity ratio of 0.2. It plans on paying for the project out of the cash from a new bank loan with an 8% interest rate (its marginal pre-tax cost of debt). Its c
Columbia Gas Company's (CG) current capital structure is 35% debt and 65% equity. This year the company has earnings after tax of $5.1 million and is paying $1.6 million in dividends. To finance a transmission pipe line, CG can borrow $2 million at a cost of 10%, the same rate that CG is currently paying on a total of $15 millio
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
The following tabulation gives earnings per share figures for the Foust Company during the preceding 10 years. The firm's common stock, 7.8 million shares outstanding, is now (1/1/03) 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 exp
Your company's weighted average cost of capital is 11%. You believe the company should make a particular investment, but the IRR of this investment is only 9%. What arguments might exist in support of your position? Is it really possible that making an investment with a return below your firm's cost of capital can ev
A company has determined that its optimal capital structure consists of 40 percent debt and 60 percent equity. Given the following information, calculate the firm's weighted average cost of capital. rd = 6% Tax rate = 40% P0 = $25 Growth = 0% D0 = $2.00 a. 6.0% b. 6.2% c. 7.0% d. 7.2% e. 8.0%
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
Let's say 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? Little difficulty with this and needing to evaluate all scenarios....
You are employed by CGT, a Fortune 500 firm that is a major producer of chemicals and plastic goods: plastic grocery bags, Styrofoam cups, and fertilizers. You are on the corporate staff as an assistant to the Vice-President of Finance. This is a position with high visibility and the opportunity for rapid advancement, providing
The following tabulation gives earnings per share figures for the Foust Company during the preceding 10 years. The firm's common stock, 7.8 million shares outstanding, is now (1/1/03) 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 expect
See attached file for full problem description. Nader Paints makes an environmentally sound paint. The following data are available for the month of April: Units Percentage Complete Costs Beginning WIP Inventory, April 11,000 Direct Materials 75 Conversion costs 70 Units started in April 6,000 Costs
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
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
Acetate, Inc., has equity with a market value of $20 million and debt with a market value of $10 million. The cost of the debt is 14 percent per annum. Treasury bills that mature in one year yield 8 percent per annum, and the expected return on the market portfolio over the next year is 18 percent. The beta of Acetate's equity
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
I am a consultant and I have collected the following information regarding a Publishing Company: Total Assets $3,000 Million Tax Rate 40% Opearting Income (EBIT) $800 Million Debt Ratio 0% Interest Expense $0 Million WACC 10% Net income $480 Million
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
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 products. The firm's present market value capital structure, shown below, is considered to be optimal. Assume that there is no short-term debt. Debt
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