Richardson Electronics has issued long-term bonds with a total market value of $50 million, and these bonds currently earn an expected return (rd) of 9 percent. Additionally, Richardson has 4 million shares of common stock outstanding, with each share trading for $10 (P0 = $10). At this price per share the stocks offer an
Recall the determined the cost of capital for Rondo. Rondo's cost of capital is the appropriate discount rate for evaluating company investment projects and we applied it to evaluating Option 1. Now I introduce a twist. When evaluating an acquisition, the appropriate discount rate is not the acquirer's cost of capital but rather
Use the appropriate MM model to evaluate the following: an unlevered firm (Firm U) has a market value of $45 million, a tax rate of 40%, and expected EBIT of $9 million. A levered firm (Firm L) is identical to Firm U (same tax rate, same EBIT) except Firm L has outstanding 8% debt of $18 million. The weighted average
1. What are some of the reasons that the cost of capital differs from country to country? What are the drivers behind this? 2. What is the significance of the WACC and how is it used to determine a firm's value? How will the differences in corporate taxes between countries affect the WACC? What is the affect of the curren
Wilsons Landscaping has 1,200 bonds outstanding that are selling for $990 each. The company also has 2500 shares of preferred stock at a market price of $28. per share. The common stock is priced at $37. a share and there are 28,000 shares outstanding. What is the weight of the common stock as it related to th firms weighted avg
You work for Smith Company as a consultant. Kroncke target capital structure is 30% debt, 20% preferred, and 50% common equity. The after-tax cost of debt is 8%, the cost of preferred is 6.5%, and the cost of retained earnings is 13.25%. the firm will not be issuing any new stock. What is its WACC? a. 10.07% b. 10.
2. Assume a project has normal cash flows. All else equal, which of the following statements is correct? a. The project's IRR increases as the WACC declines. b. The project's NPV increases as the WACC declines. c. The project's MIRR is unaffected by changes in the WACC d. The project's
Jake's Sound Systems has 210,000 shares of common stock outstanding at a market price of $36 a share. Last month, Jake's paid an annual dividend in the amount of $1.593 per share. The dividend growth rate is 4%. Jake's also has 6,000 bonds outstanding with a face value of $1,000 per bond. The bonds carry a 7 % coupon, pay intere
See attached files. DLR Company has just announced its results for the end of fiscal year. The following information is from its financial statements (all numbers in $ 000): Income Statement Sales 20,000.00 Cost of goods sold (14,000.00) Gross profi t 6,0
1. Other things held constant, the value of an option depends on the stock's price, the risk-free rate, and the a.Strike price. b.Variability of the stock price. c.Option's time to maturity. d.All of the above. e.None of the above. 2. Which of the following statements is CORRECT? a.Put
Attached is the spreadsheet we are supposed to complete. However, I ran into a snag. My pretend company sells its beer in six-packs and kegs. Since there is a mixture, I am unsure how to calculate the break-even for the sales and the volume. Please see ** ATTACHED ** file(s) for complete details!!
On January 1, 2009, Akinrimisi Corporation had 1,000,000 shares of common stock outstanding. On March 1, the corporation issued 150,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 600,000 of its own outstanding
10. Suppose the RiskFree Rate is 8%, the Expected Return this year on the S&P 500 stock market index is 13%, and the stock of Joe's Junkyard has a Beta of 1.4. Given these conditions what is the required rate of return for Joe's stock? a. 8% b. 13% c. 15% d. 21% 11. To raise money to finance the capital budg
Basu Inc. uses only equity capital, and it has two equally-sized divisions. Division A's cost of capital is 10.0%, Division B's cost is 14.0%, and the composite WACC is 12.0%. All of Division A's projects have the same risk, and all Division B projects are also equally risky. However, the projects in Division A do not have the s
Daily demand for newspapers for the last 10 days has been as follows: 12, 13, 16, 15, 12, 18, 14, 12, 13, 15 (listed from oldest to most recent). Forecast sales for the next day using a three-day weighted moving average where the weights are 3, 1, and 1 (the highest weight is for the most recent number).
Rollins Corporation is estimating its WACC. Its current and target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon rate, paid semiannually, a current maturity of 20 years, and sell for $950. The firmâ??s preferred stock is trading at $100. The
I understand that many of these problems can be done in excel, I need the formulas and calculations that would be used on a calculator to help me understand how to solve the problem myself. 1. The market value of your firm's equity is $500 million, which is also the value of your total debt. Your cost of debt (rd) is 6% a
Let's try calculating the weighted average cost of capital (WACC). Calculate the WACC given the following assumptions: a. Company tax rate is 40 percent. b. Company has an outstanding bond issue with a 7-7/8 coupon, market price of 103-5/8 (percent of 100% par, in 32nds.), semiannual coupon payments, and 12 years to maturity. c.
Can you please take a look at this problem? Xhat Inc has 12,000 bonds outstanding that have a 6% coupon rate. The bonds are selling at 98% of face value, pay interest semi-annually, and mature in 28 years. There are 400,000 shares of 9% $100 preferred stock outstanding with a current market price of $83 a share. In addition,
1) Company X is an all-equity firm (i.e. it has no debt financing) with a beta of 1.15. If the risk-free rate is 5% and the market risk premium is 9% (the expected return in the market is 14%), determine the cost of equity capital for Company X. 2) Nexel Online has a beta of 1.4 and has a debt-to-equity ratio of 0.75. (NOTE:
ABC company currently has the following capital structure: 30% debt and 70% equity based on market values. Company's equity beta based on its current level of debt financing is 1.20 and its debt beta is 0.30. Risk free rate of interest is currently 2.5% on long-term government bonds. The company's pre-tax cost of debt is 5%. Th
A company has determined that its optimal capital structure consists of 30 percent debt and 70 percent equity. Given the following information, calculate the firm's weighted average cost of capital. Rd = 6% Tax rate = 35% P0 = $35 Growth = 0% D0 = $3.00
5. Suppose Lucent Technologies has an equity cost of capital of 10%, marketd capitalization of $10.8 billion, and an enterprise value of $14.4 billion. Suppose Lucent's debt cost of capital is 6.1% and its marginal tax rate is 35%. a. What is Lucent's WACC? b. If Lucent maintains a constant debt-equity ratio, what is the
The Patrick Companyâ??s cost of common equity is 16%, its before-tax cost of debt is 13%, and its marginal tax rate is 40%. The stock sells at book value. Using the following balance sheet, calculate Patrickâ??s WACC. Please show all work. Assets Liabiliti
Summary of the balance sheet of XYZ below Balance sheet of XYZ as at 31 December 2009 ('000) Cash R10 Account payable R10 Accounts receivable 20 Acruals 10 Inventories 20
An interest payment of $650 in a 20 percent tax bracket would result in a tax saving of what? Joe Morton buys a piece of equipment for $200,000. He puts down $40,000 and finances $160,000. Joeâ??s opportunity cost is 4%, and the lenderâ??s interestâ??s rate is 8%. Find the weighted average cost of capital (WACC).
Just need some direction here. The Adams company cost of common equity is 16 percent, its before tax cost of debt is 13 percent, and its marginal tax rate is 40 percent. The stock sells at book value. Using the following balance sheet, calculate the Adams' Weighted Average Cost of Capital. Assets: cash $120 accounts re
How does the following effect mergers and acquisitions o Accounting: Revenue enhancement, cost reduction, and risk management o Taxes: Shields, synergies, and the weighted average cost of capital o Legal: Corporate organization and ownership, litigation risk, and legal compliance Select at least two effects fro
McCabe Interests has three major investments, which are given here. What should be McCabe's WACC? INVESTMENT MARKET VALUE REQUIRED RETURN Storage sheds $35 million 12% Ice rinks 15 million 17% Office furniture sales 50 million
The Chang company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has a book value and a market value of zero. However the machine is good and will last another 10 years. The replacement machine will produce after-tax cash flows (labor savings and depreciation) o