Please show work preferably all on excel A1. (Calculating the WACC) The required return on debt is 8%, the required return on equity is 14%, and the marginal tax rate is 40%. If the firm is financed 70% equity and 30% debt, what is the weighted average cost of capital? A2. (Calculating the WACC) The following values appl
Question 1 Mr. Fredwick's capital structure is 25% debt, 25% preferred stock and 50% common stock (current market values). His capital structure is 20% debt, 20% preferred stock and 60% common stock (current book values). The rate of return of each component of the capital structure is 10% on debt, 12% on preferred stock and 18
Given the following information on T & T, Inc. capital structure, compute the companyâ??s weighted average cost of capital. The company's marginal tax rate is 40%. Type of Percent of Before-Tax Capital Capital Structure Component Cost Bonds 40% 7.5% Pref
Percent Completed Units Materials Conversion Work in process, October 1 46,000 85% 55% Work in process, October 31 31,000 69% 53% The department started 397,000 units into production during the month and transferred 412,000 comp
Question 1 Patrick Brennan runs his own business, Brennan Consulting, an information technology (IT) consulting firm. The company has grown dramatically. He has 50 employees and his company's annual revenue equals $10 million. His company went public five years ago and two million shares in Brennan Consulting (BC) trade on th
Please provide answer/method if options don't match solution Assume that investors hold Google stock in retirement accounts that are free from personal taxes. Also assume that Google's current pre-tax WACC is 12%. If Google were to issue sufficient debt to give them a debt to value ratio of 0.5, then the Google's after-tax WACC
Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $52.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55%
Please provide the workings, formulas and calculations. Question 1: a) You want to quit your job and return to school for an MBA degree 3 years from now. The current tuition fee for the MBA degree is $20,000. You expect the fees to increase at an annual compounded rate of 3%. (To simplify your calculation, assume that you ha
6. You were hired as a consultant to Locke Company, and you were provided with the following data: Target capital structure: 40% debt, 10% preferred, and 50% common equity. The interest rate on new debt is 7.5%, the yield on the preferred is 7.0%, the cost of retained earnings is 11.50%, and the tax rate is 40%. The firm wil
As a member of the Finance Department of Ranch Manufacturing, your supervisor has asked you to compute the appropriate discount rate of use when evaluating the purchase of new packaging equipment for the plant. You have determined the market value of the firm's capital structure as follows: SOURCE OF CAPITAL MARKET VALUES Bo
Company has the following data available: Sales $900,000 Contribution margin 470,000 Operating Income 90,000 Average Operating Assets 750,000 Weighted avg cost of capital 14% Imputed interest is 24% Tax rate is 18% What is: a) sales margin b) capital turnover c) ROI d) res
WACC, equity from new stock, uses DCF 10. Assume that you are on the financial staff of Christopher Inc., and you have collected the following data: (1) The yield on the companyâ??s outstanding bonds is 7.0%, and its tax rate is 40%. (2) The expected year-end dividend is $0.80 a share, the dividend is expected to grow at a c
Ryan Enterprises forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13.0%, and the FCFs are expected to continue growing at a 5.0% rate after Year 3. What is the Year 0 value of operations, in millions? Year 1 2 3 FCF -$15.0 $10.0 $40.0
Hielta Oy, a Finnish company, processes wood pulp for various manufacturers of paper products. Data relating to tons of pulp processed during June are provided below: Percent completed tons of
Clonex Labs, Inc. uses a process costing system. The following data are available for one department for October: Percent Completed Units Material Conversion Work in Process, October 1
210. Which of the following statements is false regarding the cost of capital? The cost of capital should consider the flotation costs. All other being equal, it is preferable to use market value weights than book value weights. The WACC is the most appropriate discount rate for all projects.
1 EQ 2. (TCO D) After-tax returns West Corporation has $50,000, which it plans to invest in marketable securities. The corporation is choosing between the following three equally risky securities: Alachua County tax-free municipal bonds yielding 6 percent; Exxon bonds yielding 9.5 percent; GM preferred stock with a dividend
The CEO of the company below would like to know the companyâ??s current weighted average cost of capital and the expected cost of new equity if the company were to issue new shares. I need you to see the steps to calculate this and list any assumptions. I have been provide the information below: ----------------------------
A U.S. firm, Vanger Inc., is considering expansion of its British subsidiary Albion plc. The cost of the expansion is 60 million British pounds, which must be expanded in the very near future (we will assume at t=0). This capital expenditure will be depreciated straight line for five years. Revenue in the first year (aggregat
1.) Explain how a change in interest rates in the economy would be expected to affect each component of the weighted average cost of capital? 2.) If you were analyzing a replacement project and suddenly learned that the old equipment could be sold for $1,000 rather than $400, would this new information make the replacement look
Many firms use the weighted average cost of capital for the firm as the hurdle rate when comparing to IRR or as the discount rate in an NPV calculation. However, there is an implicit assumption being made when one does that. What problems can one encounter or what errors may occur if one uses the WACC for evaluating all projec
An increase in the firm's WACC will decrease projects' NPVs, which could change the accept/reject decision for any potential project. However, such a change would have no impact on projects' IRRs. Therefore, the accept/reject decision under the IRR method is independent of the cost of capital.
You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of common using retained earnings is 12.75%. The firm will not be issuing any new stock. What is its WACC? 8.9
You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of common using retained earnings is 12.75%. The firm will not be issuing any new stock. What is its WACC?
The following are data available for Richards Co. for the month of May: Sales 1,120 units Beginning Inventory 200 units @ $1.25 Purchases, in chronological order 500 units @ $1.30 400 units @ $1.40 700 units @
Brick Stone, Inc., has the following capital structure: Financing Source: Proportion of Capital Structure: a). Debentures (9% coupon, $1,000 par value, 27% 12 year maturity) b). Preferred stock ($2 dividend, $25 par value)
The all equity cost of capital for a company is 15%, and the company has set a target debt to value ratio of 50%. The current cost of debt for a firm of this risk is 10% and the corporate tax rate is 34%. What's the weighted average cost of capital (WACC) for the company? Please show all workings.
Company B has a optimal capital structure with the following sources/target market ratios: SOURCE OF CAPITAL Target Market Ratios long term debt 30% preferred stock
An analyst is attempting to determine the weighted average cost of capital for Coleslaw, Inc. The analyst has determined that Coleslaw has 3,000,000 shares of common stock outstanding, priced at $32 per share. The stock's beta is 0.90. The analyst expects that shares will pay a dividend of $2.00 next year, and that dividends wil
Problem 11.3 Seattle Scientific, Inc. Josh Miller is chief financial officer of a medium-sized Seattle-based medical device manufacturer. The company's annual sales of $40 million have been growing rapidly, and working capital financing is a common source of concern. He has recently been approached by one of his major Ja