A firm has a corporate tax rate of 35%, a cost of debt of 8.25%, with a 15% cost on its equity capital. There is $15,000,000 in debt and $25,000,000 in equity in its capital structure. What is the weighted average cost of capital of this firm? The same firm as in question 4 above changes its capital structure to reflect a 50/
The Super Muench Cookie Company has a capital structure consisting of 30% debt and 70% equity based on market values. Company's equity beta based on its current level o debt financing is 1.8 and its debt beta is 0.6. Also, the risk free rate of interest is currently 3% on long-term government bonds. The company's pre-tax cost of
The Nantucket Nugget is unlevered and is valued at $640,000. Nantucket is currently deciding whether including debt in their capital structure would increase their value. The current cost of equity is 12%. Under consideration is issuing $300,000 in new debt (perpetuity) with an 8% interest rate. Nantucket would repurchase $300,0
See attached files. Google is the target company using a two-year financial analysis, need to calculate the WACC for 2008 and 2009. Attached are the financial reports for 2008 and 2009 and relevant links. Investor relations http://investor.google.com/financial/2008/filings-archives.html Quarterly Earnings http://
When interest rates in the general market place fall below what a bond's original issued coupon payment was: a) the price of the bond remains the same, but the interest payments are lowered to adjust for the fall in rates. b) the price of the bond falls, and interest payments of the bond are lowered to adjust for the fall i
Nathan's Catering is a gourmet catering service located in Southampton, New York. It has an unleveraged required return of r=43%. Nathan's rebalances its capital structure each year to a target of L=0.52. T*=0.20. Nathan's can borrow currently at a rate of rd=26%. What is Nathan's WACC? Please provide step by step instructio
Jingle Bell is 60% debt-financed and the expected return on its debt is 6%. Its equity beta is 2. Risk-free rate of return is 4% and market risk premium is 4%. Assume Jingle Bell operates in a MM world with no taxes. a) What is Jingle Bell's WACC? b) An investor has invested all her savings (â?¬10,000) in bell product
Ottawa Manufacturing produces a plastic toy in a two-stage molding and finishing operation. The company uses the weighted-average method of process costing. During June, the following data were recorded for the Finishing Department: Units of beginning Inventory 10,000 Percentage completion of
1. Compute Maple Leaf's weighted-average cost of capital (WACC). 2. Compute the economic value added (or EVA) for each of the company's three divisions. 3. What conclusions can you draw from the EVA analysis?
Maple Leaf Industries, headquartered in Toronto, is a multiproduct company with three divisions: Pacific Division, Plains Division, and Atlantic Division. The company has two sources of long-term capital: debt and equity. The interest rate on Maple Leafâ??s $400 million debt is 9 percent, and the companyâ??s tax rate is 30
The effect of tax rate on WACC. Equity Lighting Corp. wishes to explore the effect on its cost of capital of the rate at which the company pays taxes. The firm wishes to maintain a capital structure of 30% debt, 15% preferred stock, and 55% common stock. The cost of financing with retained earnings is 17%, the cost of preferred
Campus Delhi Inc. : Optimal Capital structure, business risk, financial leverage, financial risk, target capital structure, capital structure that minimizes WACC, WACC at the optimal capital structure, how does the existence of asymmetric information & signaling affect capital structure.
Campus Delhi Inc. : Optimal Capital structure, business risk, financial leverage, financial risk, target capital structure, capital structure that minimizes WACC, WACC at the optimal capital structure, how does the existence of asymmetric information & signaling affect capital structure. Detailed answer showing step by step c
1. Why does the present value of a cash flow stream and the asset associated therewith fluctuate in value with the level of interest rates in the capital markets? 2. What are the points of financial impact on a company if it raises the credit standards required of its customers who utilized trade credit offered by the company
Company has a target capital structure of 40% debt, 10% preferred stock, and 50% common equity. The company's after tax cost of debt is 8%, its cost of preferred debt is 10%, its cost of retained earnings is 14%, and its cost of new common stock is 16%. The company stock has a beta of 1.2 and the company's marginal tax rate is 3
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
If a firm uses its WACC as the discount rate for all of the projects it undertakes then the firm will tend to: 1. reject some positive net present value projects. 2. accept some negative net present value projects 3. favor high risk projects over low risk projects 4. increase its overall level of risk over time. a. 1 a
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%
Assume a project has normal cash flows. All else equal, which of the following statements is correct?
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
In computing weighted average cost of capital, why are market value weights used instead of book value weights?
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. Thanks for your help!! 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). 12.8 13.0