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- M12-15. Estimating Cost of Equity Capital Assume that a company’s market beta equals 0.6, the risk-free rate is 5%, and the market return equals 13%. Compute the company’s cost of equity capital. Round answer to one decimal place (ex: 0.0245 = 2.5%) Answer%Ch 18) Suppose Alcatel-Lucent has an equity cost of capital of 10.1%, market capitalization of $11.52 billion, and an enterprise value of $16 billion. Suppose Alcatel-Lucent's debt cost of capital is 5.7% and its marginal tax rate is 33% a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here, c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is 8.34 % (Round to two decimal places.) b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here, The NPV of the project is $87.51 million. (Round to two decimal places.) c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? The debt capacity of the…Alpha Corporation has average annual free cashflows to the equity holder and to the firmof P3,000,000 and P3,350,000 respectively. Assuming that the weighted average cost ofcapital and actual return of on assets is 16.75% while the market return on Alpha's debt is7%, what is the value of its equity? a. P34,358,974.36 b.P15,000,000.00 c.P17,910,447.76 d.P20,000,000.00
- Given the information below. Find the Weighted Average Cost of Capital Market Value of Equity = $22,000,000; Debt = $15,000,000; Cash or Cash Equivalents = $15,000,000 iD = 0.10 or 10% iMKT = 0.17 or 17% tCorp = 0.30 or 30% bK = 1.5 IRF = 0.02 = 2%12. A firm has a total market value of £30,000. It borrows £7500 at 8% interest rate. If the return on assets is 16%, what is the firm's cost of equity capital? A. 9.0% B. 18.0% C. 21.6% D. 25.2%What is the company’s cost of capital? 1. CAPM = rrf + (rm – rrf)B = required rate of return on equityr rf = risk-free rate of return = 10-year Treasury rate = 3% S&P market premium (in parenthesis) is the extra return to cover risk offered in the stock market = 5%. B = Beta of company = 1.2 2. WACC = wdrd(1-t) + were = weighted average cost of capitalWeights of debt and equity: Given debt ratio, that is, debt to total assets = 28%. Cost of debt is bond rating at high end of A average = 6%. Tax rate given 40%.
- Suppose Alcatel-Lucent has an equity cost of capital of 9.2%, market capitalization of $10.95 billion, and an enterprise value of $15 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.9% and its marginal tax rate is 38%. a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here,? c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is%. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 1 FCF ($ million) - 100 50 Print C Done 2 99 3 66 X2. Compute the overall cost of capital based the following data. Which weight is preferable? Why? Descriptions Equity Debt Preference Shares TOTAL Specifi c cost of capital 20% 10% 14% Marginal Weights Amount Proportion S 200 700 200 1100 S 0.18 0.64 0.18 1.00 Book Value Weights Amounts Proportions 300 400 100 800 0.38 0.50 0.13 1.00 Market Value Weights Amount Proportions S 600 800 200 1600 0.4 0.5 0.1 1.00Suppose Alcatel-Lucent has an equity cost of capital of 10.4%, market capitalization of $11.52 billion, and an enterprise value of $16 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.6% and its marginal tax rate is 34%. a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here, ? c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is 9.34 %. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 1 FCF ($ million) 45 Print 0 - 100 Done 2 101 3 66 - X
- Assume there are two firms with a MV of $50,000,000. Firm A consists of 10% debt and 90% equity. Firm B consists of 40% debt and 60% equity. Assume perfect capital markets and M&M Proposition 2 holds. Which firm will have a higher expected return for equity holders? Why? For the toolhar prace ALT+F10/PC or ALT+FN+F10 (Mac).Answer? ? Financial accounting question6. Company cost of capital (S9.2) Nero Violins has the following capital structure: Total Market Value ($ millions) $100 Security Debt Preferred stock Common stock Beta 0 0.20 1.20 40 299 a. What is the firm's asset beta? (Hint: What is the beta of a portfolio of all the firm's securities?) b. Assume that the CAPM is correct. What discount rate should Nero set for investments that expand the scale of its operations without changing its asset beta? Assume a risk-free interest rate of 5% and a market risk premium of 6%. Ignore taxes.
