I want to correct answer accounting questions A company has an expected perpetual EBIT = $8,500. The unlevered cost ofcapital = 10% and there are 25,000 shares of stock outstanding. The firm isconsidering issuing $15,000 in new par bonds to add financial leverage to thefirm. The proceeds of the debt issue will be used to repurchase equity. Thecost of debt = 6% and the tax rate is 30%. There are no flotation costs. Whatis the value of the equity after the restructuring?

To determine the value of equity after restructuring, we will systematically work through the…

Answered: A company has an expected perpetual…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Company Y has a target debt ratio of 55%. Currently its debt ratio is 60% and it expects to revert to the target ratio in the near future. The company has a market cost of equity of 20%. While it has no bonds, it has interest payments of R1 000 000 on liabilities of R10 000 000. Assume the tax rate is 27%. What is the WACC for the company? a. 6.36% b. 14.05% c. 13.02% d. 9.10%
Company Y has a target debt ratio of 55%. Currently its debt ratio is 60% and it expects to revert to the target ratio in the near future. The company has a market cost of equity of 20%. While it has no bonds, it has interest payments of R1 000 000 on liabilities of R10 000 000. Assume the tax rate is 28%. What is the WACC for the company? Ⓒa. 6.36% b. 9.00% c. 12.33% d. 12.96%
Buggins Inc. is financed equally by debt and equity, each with a market value of $1 million. The cost ofdebt is 5%, and the cost of equity is 10%. The company now makes a further $250,000 issue of debt anduses the proceeds to repurchase equity. This causes the cost of debt to rise to 5.5% and the cost of equityto rise to 10.83%. Assume the firm pays no taxes. 1. What is the overall cost of capital?2. What is the percentage increase in earnings per share after the refinancing? I already asked the question, and there was a mistake: equity and debt are each 1.000.000 in the beginning. I don´t understand the solution for the number 2: There was interested included and I don´t know how to derive interest from the given numbers
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Bruce & Co. expects its EBIT to be $100,000 every year forever. The firm can borrow at 11 percent. Bruce currently has no debt, and its cost of equity is 18 percent. The tax rate is 31 percent. Given the above information; a) Complete the table given below for varying levels of debt below by using a mix of the given information and using your own computations. EBIT $100,000.00 Cost of debts 11% cost of equity when unlevered 18% Tax rate 31% Debts $0 $10,000.00 $20,000.00 $30,000.00 Cost of Equity when levered Equity D/E Vu VL WACC b) Plot the results from the table into the following two graphs:i) Value of the firm vis-à-vis- Total debtii) Cost of capital of the firm vis-à-vis D/E ratio.iii) Which MM propositions have you demonstrated?
Bruce & Co. expects its EBIT to be $100,000 every year forever. The firm can borrow at 11 percent. Bruce currently has no debt, and its cost of equity is 18 percent. The tax rate is 31 percent. Given the above information; a) Complete the table given below for varying levels of debt below by using a mix of the given information and using your own computations. EBIT $100,000.00 Cost of debts 11% cost of equity when unlevered 18% Tax rate 31% Debts $0 $10,000.00 $20,000.00 $30,000.00 Cost of Equity when levered Equity D/E Vu VL WACC b) Plot the results from the table into the following two graphs:i) Value of the firm vis-à-vis- Total debtii) Cost of capital of the firm vis-à-vis D/E ratio.iii) Which MM propositions have you demonstrated? Please show the graphs.
Jenkins, Inc., has equity with a market value of $22.6 million and debt with a market value of $11.3 million. The cost of debt is 8 percent per year. Treasury bills that mature in one year yield 4 percent per year, and the expected return on the market portfolio over the next year is 10 percent. The beta of the company's equity is 1.11. The firm pays no taxes. a. What is the company's debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the company's weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the cost of capital for an otherwise identical all-equity firm? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Debt-equity ratio b. Weighted average cost of capital C. Cost of capital 0.50 % %
Here is Icknield’s market-value balance sheet (figures in $ millions): Net working capital $550 Debt $800 long term assets $2,150 Equity $1,900 value of firm $2,700 $2,700 The debt is yielding 7%, and the cost of equity is 14%. The tax rate is 21%. Investors expect this level of debt to be permanent. a. What is Icknield’s WACC? b. How would the market-value balance sheet change if Icknield retired all its debt?
Calvert Corporation expects an EBIT of $25,500 every year forever. The company currently has no debt, and its cost of equity is 15.4 percent. The company can borrow at 10.2 percent and the corporate tax rate is 21 percent. a. What is the current value of the company? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-1. What will the value of the firm be if the company takes on debt equal to 50 percent of its unlevered value? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-2. What will the value of the firm be if the company takes on debt equal to 100 percent of its unlevered value? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c-1. What will the value of the firm be if the company takes on debt equal to 50 percent of its levered value? (Do not round intermediate calculations and round your answers to 2 decimal places,…
The market value of Charter Cruise Company's equity is $15 million and the market value of its debt is $5 million. If the required rate of return on the equity is 20% and that on its debt is 8%, calculate the company's cost of capital. Assume no taxes.
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