A firm has an outstanding debt with a coupon rate of 8%, 9 years maturity, and a price of $1,000. What is the after-tax cost of debt if the marginal tax rate of the firm is 40%?
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- A firm has outstanding debt with a coupon rate of 7%, ten years maturity, and a price of $1,000. What is the after-tax cost of debt if the marginal tax rate of the firm is 25%? OA) 4.7% B) 5.5% C) 4.2% D) 5.3%The coupon rate on a debt issue is 6%. If the yield to maturity on the debt is 9%, what is the after-tax cost of debt in the weighted average cost of capital if the firm's tax rate is 21%?Consider a two-date binomial model. A company has both debt and equity in its capital structure. The value of the company is 100 at Date 0. At Date 1, it is equally like that the value of the company increases by 20% or decreases by 10%. The total promised amount to the debtholders is 100 at Date 1. The riskfree interest rate is 10%. a. What is the value of the debt at Date 0? What is the value of the equity at Date 0? b. Suppose the government announces that it guarantees the company’s payment to the debtholders. How much is the government guarantee worth?
- Imagine a firm with one period of operations. In case of a strong economy, the FCF from operations at year 1 will be $2,800. In case of a weak economy, the FCF at year 1 will be $1,800. Both scenarios are equally likely to happen. The risk-free rate is 3% and the equity risk premium is 12% per year. Under these circumstances, if the cost of levered equity is 28%, how much debt financing does the firm use? $1,070 $960 $1,110 $1,000 O $1,040A firm will earn a taxable net return of $500 million next year. If it took on debt today, it would have to pay creditors\varepsilon(rDebt) = 5% + 10% x wDebt2. Thus, if the firm has 100% debt, the financial markets would demand 15% expected rate of return. Further, assume that the financial markets will lend the firm capital at this overall net cost of 15%, regardless of how the firm is financed. The firm is in the 25% marginal tax bracket. 1. If the firmis fully equity-financed, what is its value? 2. Using APV, if the firm is financed with equal amounts of debt and equity today, what is its value? 3. Using WACC, if the firm is financed with equal amounts of debt and equity today, what is its value? 4. Does this firm have an optimal capital structure? If so, what is its APV and WACC?A firm that is currently unlevered has WACC = rS = 10%/year. This company plans to do a recapitalization by issuing debt and repurchasing equity. After the recapitalization, the debt-to-equity (D/E) ratio will be 0.5. If the cost of debt, rD, is 6%, what will be rS after the recapitalization?
- Suppose that a company yields mean returns of 20% (equity), and 9% mean returns on every peso the company invests (debt) in a certain alternative. What would be the best decision if the MARR and ROR calculated is 12%?Harmony Sego has a tax rate of 21%, the interest rate on debt is 10%, and the WACC is 15%. If the debt ratio is 60% (i.e., the weight on debt), what is the expected rate of return to equity holders? O 12.50% O 22.50% O 25.65% O 21.25%a firm has a debt-to-equity ratio of 1.0. if we assume that the firm's debt pays 11% interest annualy, the equity has a 19% annual return, and the tax rate is 40%, then what is the firms WACC?
- Suppose the Machine Corp. has a capital structure of 80% equity and 20% debt with the following information: a Beta of 1.3, Market Risk Premium of 10%. Kamino's average long term debt pays a 10% annual coupon with ten years to maturity, currently selling for $800 (face value of $1,000). If Kamino's tax rate is 20% and the risk free rate is 2%, what is the Weighted Average Cost of Capital?Suppose Riggley Corp. has a capital structure of 40% equity and 60% debt with the following information: a Beta of 0.7, Market Risk Premium of 5%. Riggley's average long term debt pays a 5% annual coupon with fifteen years to maturity, currently selling for $980 (face value of $1,000). If Riggley's tax rate is 15% and the risk free rate is 3%, what is the Weighted Average Cost of Capital?A firm has expected EBIT of $910, debt with a face and market value of $2,000 paying an 8.5% annual coupon, and an unlevered cost of capital of 12%. If the tax rate is 21%, what is the value of the equity? A) $3,258 B) $4411 C) $5.685 D) $6,325 E) $7,005 COA B OD OE
