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Given the following calculate the Cost of Equity. Beta Equity Risk Premium Pre-tax Yield on Debt Return on the Bond Market Return on the Stock Market Risk Free Rate Tax Weight of Debt in the Total Capital Structure Weight of Equity in the Total Capital Structure 1.5 5.5% 6.0% 4.5% 8.0% 2.5% 25.0% 25.0% 75.0%

RATIO ANALYSIS. Debt Ratio Activity 6 · Understand the information provided by the debt ratio. · Identify the expected range and whether an increasing or decreasing trend is preferred. Purpose: The debt ratio compares total liabilities to total assets. This ratio measures the proportion of assets financed by debt. It is a measure of long-term solvency. Total liabilities DEBT RATI0 = Total assets JOHNSON & CITIGROUP 12/31/99 HEWLETT- PACKARD 10/3 1/99 JOHNSON 1/03/99 WAL-MART 1/31/99 ($ in 000s) Assets $716,937,000 $35,297,000 $26,211,000 $49,996,000 Liabilities 667,251,000 17,002,000 12,621.000 28,884,000 Stockholders' Equity $ 49,686,000 $18,295,000 $13,590,000 $21,112,000 Source: Disclosure, Inc, Compact D/SEC, 2000. 1. For each-company listed above, compute the debt ratio. Record your results below. Debt ratio: 0.93 2. The debt ratios computed above are primarily in the ranġe (less than 0,40 / 0.40 through 0.70 / over 0.70): 3. % of Wal-Mart's assets are financed by debt. 4.…

Assuming Target’s industry had an average current ratio of 1.0 and an average debtto equity ratio of 2.5, comment on Target’s liquidity and long-term solvency.

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1 2 Debt Ratio (current) 3 Equity Ratio (current) 4 Cost of Debt 5 Market Risk Premium 6 Equity Beta 7 Debt Beta 8 Risk Free Rate 9 Corporate Tax Rate 10 11 12 a. Cost of Equity 13 b. WACC 14 c. 15 Unlvered beta 16 Debt to Equity Ratio 17 Debt to Equity Beta 18 Cost of Equity 19 Debt to Ratio Given 20 Equity Ratio 21 Revised WACC 22 Solution 30.00% 70.00% 6.00% 5.25% 1.20% 0.29 4.50% 35.00% 40%

Based on the table below, Berwyck Industries' credit risk is most likely Total Debt/Total Capital (%) Cash flow/Total Debt (%0 Return on Capital (%) Total Debt/EBITDA(X) EBITDA Interest Coverage (X) Berwyck Ind 47.1 19.6 Industry Median 42.4 Group of answer choices a higher than the industry b lower than the industry c the same as the industry d No answer text provided. 77.5 23.6 6.55 1.2 2.85 17.77 6.45

firm with a debt ratio of 0.75, will have an equity multiplier of ____.   a. 0.25   b. 4.00   c. 0.75   d. 1.00

la bonitob at bloky enig (7.8) The interest rate investors expect on a new bond issue can be determined by computing the for the company's Alternatively, it is possible on newly to determine the cost of new debt financing by finding the issued bond with similar (7.9) The firm's overall measure of the cost of capital is the cost of debt is the The dollar cost of equity is overall firm average cost of capital is the cost of equity plus the cost of debt, divided by The dollar (7.10) Interest (is / is not) a tax-deductible expense, and dividends paid to stockholders (are / are not). The payment of interest reduces the firm's taxes by after-tax cost of debt in dollars equals The after-tax cost of debt in percentage terms is WACC = dito The The

The Crane Products Co. currently has debt with a market value of $275 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15 years and are currently priced at $1,418.61 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $11 per share. The preferred shares pay an annual dividend of $1.20. Crane also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 5 percent per year forever. If Crane is subject to a 40 percent marginal tax rate, then what is the firm's weighted average cost of capital? Excel Template (Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy…

Calculate Cost of Common Equity using CAPM (Capital Asset Pricing Model), DCF (Discounted Cash Flow Model) and Bond Yield Risk Premium  CAPM data: VEC’s beta = 1.2 The yield on T-bonds = 3% Market risk premium = 7% DCF data: Stock price = $27.08 Last year’s dividend (D0) = $2.10 Expected dividend growth rate = 4% Bond-yield-plus-risk-premium data: Risk premium = 5.5%   Amount of retained earnings available = $80,000 Floatation cost for newly issued shares = 7%

48 The Sunland Products Co. currently has debt with a market value of $300 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15 years and are currently priced at $1,434.63 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $10 per share. The preferred shares pay an annual dividend of $1.20. Sunland also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 5 percent per year forever. If Sunland is subject to a 40 percent marginal tax rate, then what is the firm's weighted average cost of capital? Excel Template (Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen…

A firm has a debt-equity ratio of 1.10. What is the total Debt ratio? A) 0.52 B) 1.10

Consider the following average annual returns: Average Return 23.5% 13.1% 7.5% 6.8% 4% Investment Small Stocks S&P 500 Corporate Bonds Treasure Bonds Treasury Bills What is the excess return for corporate bonds? O A. 1.8% OB. 0% OC. 7% OD. 3.5%

DeSoto Tools Incorporated is planning to expand production. The expansion will cost $3,000,000, which can be financed either by bonds at an interest rate of 8 percent or by selling 60,000 shares of common stock at $50 per share. The current income statement before expansion is as follows: DESOTO TOOLS INCORPORATED Income Statement 20x1 Sales Variable costs Fixed costs Earnings before interest and taxes Interest expense Earnings before taxes Taxes 30% Earnings after taxes Shares Earnings per share $ 3,100,000 620,000 810,000 $ 1,670,000 500,000 $ 1,170,000 351,000 $ 819,000 200,000 $4.10 After the expansion, sales are expected to increase by $1,600,000. Variable costs will remain at 20 percent of sales, and fixed costs will increase to $1,370,000. The tax rate is 30 percent. a. Calculate the degree of operating leverage, the degree of financial leverage, and the degree of combined leverage before expansion. (For the degree of operating leverage, use the formula: DOL= For the degree of…

As a short-term creditor concerned with a company's ability to meet its financial obligation to you, which one of the following combinations of ratios would you most likely prefer?   Current                Debt     ratio      TIE       ratio   Question 7 options:   1.0        1.0        0.50   2.5        0.5        0.71   1.5        1.5        0.50   2.0        1.0        0.67   0.5        0.5        0.33

Comparing the extent of long-term debt to equity is an example of __________.   Multiple Choice   Pivottables   Vertical analysis   Horizontal analysis   Ratio analysis

The cost of debt is the _____ of the company's bonds. yield to maturity price current yield coupon rate

Red Fire has a Debt/Equity Ratio of .1, a return on sales of 3.4, and an asset turnover of 2.3. What is its ROE?   Question 7 options:   6.9%   0.8%   8.6%   6.0%   19.8%

Which one of the following statements is correct? Multiple Choice If the total debt ratio is greater than .50, then the debt-equity ratio must be less than 1.0. Long-term creditors would prefer the times interest earned ratio be 1.4 rather than 1.5. The debt-equity ratio can be computed as 1 plus the equity multiplier. An equity multiplier of 1.2 means a firm has $1.20 in sales for every $1 in equity. An increase in the depreciation expense will not affect the cash coverage ratio. 1

Select all that are true with respect to the cost of debt. Group of answer choices it is the return the firm needs to earn overall to satisfy all investors It is the rate the debt holders demand given the risk they face as debt holders Can be estimated using CAPM Cannot be estimated using CAPM because CAPM is used for estimating the cost of equity Is always equal to the YTM on a company's existing bonds Is lower than the YTM on a company's existing debt if there is default risk Can be proxied by the YTM on a company's existing debt if the debt is risk free       Flag question: Question 7