1. The 10 year US Treasury bond market rate is 5%, the stock market risk premium is 6%, and a company's beta is 1.5. Use the CAPM to calculate the required return for that company's stock; then briefly explain the logic of this calculation. 2. Keep all of the assumptions from quetion 1 and add the following: The company ha
Consider the following information for Evenflow Power Co., Debt: 2,500 7.5 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 103 percent of par; the bonds make semiannual payments and have a YTM of 7.21%. Common stock: 52,500 shares outstanding, selling for $61 per share; the bet
Solex Company produces a high-quality insulation material that passes through two production processes. The data for June for the first process may be found in the attached document. Using the weighted average method, determine the total cost of units transferred to the next process in June.
19.Determine what the Beta is for a firm that has the following characteristics: (a) Expected Return on the Company's Stock is 13%, (b) Risk Free Rate of Return is 3%, and (c) The Market's Return is expected to be 10%. 20. Using the 'constant growth model', determine what the investor's required rate of return is given the fo
9. As a general rule, the capital structure that maximizes firm value, or stock price also a. mximizes the expected rate of return on equity (ROE) b. maximizes the weighted average cost of capital (WACC) c. minimizes the weighted average cost of capital (WACC) d. maximizes EPS e. minimizes bankruptcy costs
6. Financial leverage affects both EPS and EBIT. a. true b. false 8. If debt financing is used, which of the following is true? a. In response to a given percentage change in sales, the percentage change in operating income is greater than the percentage change in net income. b. In response to a given percentage
What is the main difference WACC and APV methods?
1.Calculate Company A's weighted average cost of debt, given the following information: (a) Tax Rate: 25%, (b) Average Price of Outstanding Bonds: $975, (c) Coupon Rate: 4%, (d) NPER: 25, (e) Debt: $23,000,000, (f) Equity: $20,000,000, and (g) Preferred Stock: $10,000,000. 2.Calculate Company B's weighted average cost of equ
Determine the WACC for the Firm: Calculate your 'best' estimate of the Weighted Average Cost of Capital (WACC) for the firm. In order to complete this task, you will need to do the following: Determine the cost of debt: Please explain the approach and procedure you use to make this determination. Determine the cost o
Cypress Corporation has a target capital structure of 60% debt, 15% preferred stock, and 25% common stock. Currently Cypress has a capital structure of 75% debt, 10% common stock, and 15% preferred stock. The after tax cost of debt is 6%. The preferred stock has a par value of $100 per share, a $9 per share dividend, and a market price of $80 per share. The common stock of Cypress trades at $84 per share and has a projected dividend (D1) of $3.36. The stock price and dividend are expected to continue to grow at 12% for the foreseeable future. The CFO expects the company to have $590,000 available from retained earnings. What is the weighted average cost of capital (WACC) for Cypress? a. 8.95% b. 9.29% c. 9.41% d. 11.08%
10. Cypress Corporation has a target capital structure of 60% debt, 15% preferred stock, and 25% common stock. Currently Cypress has a capital structure of 75% debt, 10% common stock, and 15% preferred stock. The after tax cost of debt is 6%. The preferred stock has a par value of $100 per share, a $9 per share dividend, and a
WACC, EVA & MVA Use the selected statistics from the table below. Your company's name is Digby. Part I: Calculate your company's Weighted Average Cost of Capital in Year 2. In calculating cost of equity, use the CAPM. In the CAPM, use 6.0% for the risk free rate, 5.0% for the market risk premium, and assume your company is r
3. Hatteburg Company uses the weighted-average method in its process costing system. The following data about one of its processing department were taken from the company's accounting records: The department's ending work in process inventory consisted of 36,000 units. The units in the ending work in process inventory were 100
Rockwall Tile Inc uses the weighted average method for process costing: equivalent units, cost per unit, transferred out, ending Work in Progress
See attached file. Rockwall Tile Inc uses the weighted average method for process costing: equivalent units, cost per unit, transferred out, ending WIP
1) International investment returns Joe Martinez, a U.S. citizen living in Brownsville, Texas, invested in the common stock of Telmex, a Mexican corporation. He purchased 1,000 shares at 20.50 pesos per share. Twelve months later, he sold them at 24.75 pesos per share. He received no dividends during that time. a. What was Jo
Can you help me with the following assignment/project? 1. As the new chief financial officers (CFO) of Q & R Manufacturing, the chief executive officer (CEO) reminded you that you are expected to try and adjust the firm's capital structure to lower its weighted average cost of capital (WACC). He asks you to address a number o
Thanks for helping me with this! The Excel attachment might be easier to read, too. ---------------- Consider the trade information in the table: Time Trade Price Trade Volume 11:18 23.23 15000 11:19 23.25 1000 11:23 23.25 5000 11:25 23.27 2000 11:28 23.29 5000 11:30 23.31 5000 11:32 23.3 3000 11:34 23.28 2500
GII capital structure is 75% equity based and 25% debt based. GII is in the 25% marginal tax bracket in France and has a cost of equity of 18% and an average debt cost of 7%. Calculate GII weighted average cost of capital (WACC).
The common stockholders have an expected return of 12%, preferred stockholders have an expected return of 6%, and the firm's bondholders purchased the firms bonds at a yield to maturity (YTM) of 4%. The firm's tax rate is 40%. Common stock $2,000,000 Preferred stock $3,000,000 Long-term debts (bonds) $5,000,000 Total li
Using the same public firm (WAL-MART), compute the weighted average cost of capital (WACC). Equity market values (capitalization or cap value) for your company can be found on any financial website like Yahoo Finance among others. For the cost of equity, use the CAPM rate calculated in week 2. Assume the market value of
Reacher Technology has consulted with investment bankers and determined the interest rate it would pay for different capital structures, as shown below. Data for the risk-free rate, the market risk premium, an estimate of Reacher's unlevered beta, and the tax rate are also shown below. Based on this information, what is the firm's optimal capital structure and what is the weighted average cost of capital at the optimal structure? Percent Financed with Debt (wd) Before-tax Cost Debt (rd) Input Data Risk-free rate 4.5% Market risk premium 5.5% Unlevered beta 0.8 0% 6.0% Tax rate 40.0% 10% 6.1% 20% 7.0% 30% 8.0% 40% 10.0% 50% 12.5% 60% 15.5% 70% 18.0% Fill in formulas in the yellow cells to find the optimum capital structure. Debt/Value Equity/Value Debt/Equity A-T Cost of Levered Cost of Ratio (wd) Ratio (ws) Ratio (wd/ws) Debt (rd) Beta Equity WACC 0% 1.0 0.00 10% 0.9 0.11 20% 0.8 0.25 30% 0.7 0.43 40% 0.6 0.67 50% 0.5 1.00 60% 0.4 1.50 70% 0.3 2.33 WACC at optimum debt ratio = Optimum debt ratio =
See attached file. Chapter 15. Ch 15-12 Build a Model Reacher Technology has consulted with investment bankers and determined the interest rate it would pay for different capital structures, as shown below. Data for the risk-free rate, the market risk premium, an estimate of Reacher's unlevered beta, and the
A company you are researching has common stock with a beta of 1.25. Currently, Treasury bills yield 4%, and the market portfolio offers an expected return of 13%. The company finances 20% of its assets with debt that has a yield to maturity of 6%. The firm also uses preferred stock to finance 30% of its assets. The preferred sto
Explain how a business can reduce the following: 1. WACC- Weighted average cost of capital 2. How do reduce Beta 3. How do you reduce cost of common stock 4. How do you lower cost of equity 5. What is the effect of lowering the cost of equity
Assume everything is held constant, which of the following statements best describes the relationship between rs, (1-T)rd, WACC, and the debt total asset ratio? a. rs, (1-T)rd, and WACC all increase whenever the debt/total asset ratio rises. b. rs, (1-T)rd and WACC all decrease whenever the debt/total asset ratio rises. c.
All else constant, an increase in a firm's cost of debt: could be caused by an increase in the firm's tax rate. will result in an increase in the firm's cost of capital. will lower the firm's weighted average cost of capital. will lower the firm's cost of equity. will increase the firm's capital structure weight
What is the after tax cost of debt on a $345000 loan given a 9% interest rate and 28% tax bracket? 8.9% $22,356 6.48% $36,000 Brown Street Grocers has a cost of equity of 10.68 percent, a pre-tax cost of debt of 5.4 percent, and a tax rate of 33 percent. What is the firm's weighted average cost of capital if the
The cost of capital for a project depends primarily on the: firm's overall source of funds. source of the funds used for the specific project. current tax rate. use of the funds. firm's historical rates of return. A company you are researching has common stock with a beta of 1.5. Currently, Treasury bills yi
Corporate Finance 1)Use Excel to calculate WACC 2)Use Word to explain how the capital structure would need to change to reduce cost of capital 3)Determine if the capital structure is at optimal level now, explain in detail why you believe this to be true 4)If the capital is not optimal, would altering it increase or de
Calculate the following based on the information below: 1. The company's market capital structure. 2. The WACC the firm should use when evaluating a new investment by discounting the project's cash flow. a. 7.5 million shares of common stock outstanding, and currently selling for $64 per share with a beat of 1.2 b. 5
Calculate the weighted average cost of capital for the following firm: it has $200000 in debt, $400000 in common stock and $10000 in preferred stock. It has a 5% cost of debt, 13% cost of common stock, 11% cost of preferred stock and a 32% tax rate. 1. 7.29% 2. 8.65% 3. 9.82% 4. 10.24%.
The bond issues outstanding are 150 million of 10% series.........2021 50 million of 7% series...........2015 75 million of 5% series..........2011 The companies planning to sell $75 million of bond for next year to replace the debt due to expire 2008. Present market yield for similar BAA rated bonds is 12.1%. Company ha
Attached is an Excel file with five problems: E15: Earnings and leverage E19: Capital investment opportunity E22: Tax shields E23: WACC E24: Market value of firm