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Weighted Average Cost of Capital (WACC)

No Leverage, Inc., and High Leverage, Inc: Determine Optimal Capital Structure

Two firms, No Leverage, Inc., and High Leverage, Inc, have equal levels of operating risk and differ only in their capital structure. No Leverage is unlevered and High Leverage has $500,00 of perpetual debt in its capital structure. Assume that the perpetual annual income of both firms available for stockholders is paid out as

Finance: PV of project, stock price, expected return with beta of 2, WACC

1. Co. A is considering the following project. The project cost will be due one year from today and will be $100m. The company will receive $200m in revenue from the project but that will be two years from today. What is the PV of the profit on the project? 2. Co. A is about to pay a dividend of $2.00 per share. Its futur

25 Finance questions: TVM, ratio analysis, budgeting, WACC, contribution margin

True/False: Write "T' if the statement is true and "F" is the statement is false. 1. The focus of DuPont analysis is to provide management information as to how the firm is using its resources to maximize returns on owners' investments. 2. The financial manager should examine available risk-return trade-offs and make hi

Cost of common equity and WACC

Patton Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. It's before tax cost of debt is 12%, and it's marginal taz rate is 40%. The current stock price is Po= $22.50. The last dividend was Do=$2.00, and it is expected to grow at a constant rate of 7%. What is the cost

Lebron James: Conversion from FIFO to weighted average; income statement effects

BE4-6 During 2007 Lebron James Company changed from FIFO to weighted-average inventory pricing. Pretax income in 2006 and 2005 (James's first year of operations) under FIFO was $160,000 and $180,000, respectively. Pretax income using weighted-average pricing in the prior years would have been $145,000 in 2006 and $170,0

Divisional Cost of Capital Approach vs Weighted Average Cost of Capital

Please explain how to calculate the weighted average cost of capital and how it compares to divisional cost of capital approach. Thank you. Currently, Red Sun, Inc.'s capital structure is 65% equity based and 35% debt based. Red Sun is in the 20% marginal tax bracket in Japan and has a cost of equity of 12% and an average deb

Question about WACC

Milton Parker has a capital structure that consists of $7 million of debt, $2 million of preferred stock, and $11 million of common equity, based upon current market values. Parker's yield to maturity on its bonds is 7.4%, and investors require an 8% return on Parker's preferred and a 14% return on Parker's common stock. If the

Case (Finance)

Dear OTA, Can you please help me with this assignment. Please answer questions #1-5 & #9-11. Please use the attached excel spreadsheet to support the analysis. Thanks

Shine and Glow: Compute cost of equity, WACC, optimal capital budget

Shine and Glow Company (S&G) uses only debt and equity. It can borrow unlimited amounts at an interest rate of 12 percent so long as it finances at its target capital structure, which calls for 45 percent debt and 55 percent common equity. Its last dividend was $2.40, its expected constant growth rate is 5 percent, and its stock

Goff Computer, Inc (GCI): Determine the cost of capital using Dell

Goff Computer, Inc (GCI): Determine the cost of capital You have recently been hired by Goff Computer, Inc (GCI), in the finance area. GCI was founded eight years ago by Chris Goff and currently operates 74 stores in the Southeast. GCI is privately owned by Chris and his family and had sales of $97 million last year. GCI

Cost of Capital

Problem 10-1 --> Payback Three separate projects each have an initial cash outlay of $10,000. The cash flow for Peter's project is $4,000 per year for three years. The cash flow for Paul's Project is $2,000 in years 1 and 3 and $8,000 in year 3. Mary's Project has a cash flow of $10,000 in year 1, followed by $1,000 each yea


The JBH Corp expects to pay a dividend next year of $2.22. It expects its cash dividends to grow 5% per year forever. JBH has a debt ratio of L = 35%. Its borrowing rate is rd =9%. JBH pays corporate taxes at the rate of 30%, rf = 6%, rm = 12%, and JBH's common stock is currently selling for $20 per share. Answer the below quesi

CGT, a Fortune 500 firm: Estimate the WACC

You are employed by CGT, a Fortune 500 firm that is a major producer of chemicals and plastics, including plastic grocery bags, styrofoam cups, and fertilizers. You are on the corporate staff as an assistant to the CFO. This is a position with high visibility and the opportunity for rapid advancement, providing you make the ri

Should WACC be used to evaluate projects of varying risks?

Suppose a firm estimates its WACC to be 10 percent. Should the WACC be used to evaluate all of its potential projects, even if they vary in risk? If not, what might be "reasonable" costs of capital for average-, high-, and low-risk projects?

ADB Corporation: initial weighed average cost of capital (WACC)

ADB Corporation is considering building a new facility in Texas. To raise money for the capital projects, the corporation plans the following capital structure: 30% of money will come from issuing bonds, and 70% will come from Retained Earnings or new common stock. The corporation does not currently have preferred stock.

20 MCQ Finance: cost of equity, full capacity, project cost, R&D, value of stock

1. The Kimberly Corporation is a zero growth firm with an expected EBIT of $100,000 and a corporate tax rate of 30%. Kimberly uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%. What is the firm's cost of equity? A) 21.0% B) 23.3% C) 25.9% D) 28.8% E) 32.0% 2. Leak In

Using the WACC equation

Question 1: Company with a target structure of 60% debt and 40% common equity, with no preferred stock. The firm's cost of common equity is 12.5% and its WACC is 8.780%. If the firm's tax rate is 30% what is the before tax yield on this company's long term debt? A. 8.4% B. 9.0% C. 9.8% D. 8.2% E. 9.4% Question 2: Th

Capital Structure Concepts for Arrow Technology

Arrow Technology, Inc. (ATI) has total assets of $10,000,000 and expected operating income (EBIT) of $2,500,000. If ATI uses debt in its capital structure, the cost of this debt will be 12 percent per annum.

Goals, Ratios, Investments, Budgets, Planning, PV and WACC

MULTIPLE CHOICE. Choose the one answer for the question. 1. Which of the following is true of an efficient market? a. 0 There is one seller b. 0 There is one buyer c. 0 Stock exchanges are always open d. 0 There is always a low brokerage fee e. 0 Information is reflected in security prices immediately 2. Which of

Beckman Engineering (BEA): share price, repurchase, weighted cost of capital

Beckman Engineering and Associates (BEA) has 25 million shares outstanding. Shares are trading at $8.00. BEA management plans to raise $60 million to by issuing debt to repurchase shares. Suppose that BEA is an all equity firm before the debt issue, it is subject to 36% corporate tax rate, its cost of debt is 5% and equity co

Value of operations.

Please see attached. Please work out in steps. H Corp is a growing company. Analysts project the following free cash flow during the next 2 years, after which FCFs are expected to grow at a constant 5% rate. H Corp cost of capital is WACC = 10 %. Time 1 2 3 FCF 50 75 a. What is the terminal or horizon value at year 2? b. W

Leverage and WACC for ABC Co. and XYZ Co.

ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all equity financed with $800,000 in stock. XYZ uses both stock and perpetual debt. Its stock is worth $400,000 and the interest rate on its debt is 10%. Both firms expect EBIT to be $90,000. Ignore Taxes. Rico owns $30,000 wort