A firm has no debt but can borrow at 8 percent. The firm's WACC is currently 11 percent, and the tax rate is 35 percent. If the firm converts to 50 percent debt, what will its cost of equity be? 13.38% 11% 14% 9.5% 12.95%
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- Stevenson's Bakery is an all-equity firm that has projected perpetual EBIT of $195,000 per year. The cost of equity is 13.9 percent and the tax rate is 21 percent. The firm can borrow perpetual debt at 5.9 percent. Currently, the firm is considering converting to a debt–equity ratio of 1.05. What is the firm's levered value? MM assumptions hold. Multiple Choice $841,727 $1,092,192 $757,554 $927,952 $1,227,480If a firm now has a debt ratio of 50% but plans to finance with only 40% debt in thefuture, what should it use as wd when it calculates its WACC? Explain.17. A firm currently has a cost of equity (i.e., a required return on its equity) of 15%. It has no debt outstanding, but bankers have offered to lend to it at an interest rate of 6%, as long as it maintains a debt - to - value ratio no greater than .3. What would the firm's new cost of equity be if it borrows up to this amount of debt, converting to a debt-to- value ratio of .3 ? A. 8.57% B. 16.80% C. 17.57% D. 17.70% Ε. 18.86% Answer: E. 18.86%
- Stevenson's Bakery is an all-equity firm that has projected perpetual EBIT of $183,000 per year. The cost of equity is 13.1 percent and the tax rate is 21 percent. The firm can borrow perpetual debt at 6.3 percent. Currently, the firm is considering converting to a debt–equity ratio of .93. What is the firm's levered value? MM assumptions hold. A. $829,786 B. $1,215,262 C. $1,155,579 D. $997,511 E. $921,985Stevenson's Bakery is an all-equity firm that has projected perpetual EBIT of $159,000 per year. The cost of equity is 11.5 percent and the tax rate is 21 percent. The firm can borrow perpetual debt at 6.3 percent. Currently, the firm is considering converting to a debt–equity ratio of .69. What is the firm's levered value? MM assumptions hold. Multiple Choice $1,185,911 $962,907 $898,696 $1,106,128 $808,826 Please answer fast i give upvoteHarmony 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%
- Assuming a perfect world without taxes. Home Decor has a debt ratio (D/V) of 2/5. The cost of equity is 14%, the cost of debt is 8%. The firm is considering increasing its leverage to a 2/3 debt ratio. What is the firm's cost of equity after the restructure? 17% 14% 18.8% 11.6%Walmart (WMT) is currently all-equity financed, its equity rate of return is 15%. Walmart expects believes that if it becomes levered with a D/E ratio of 0.4, it's cost of debt will be 3.5%. What will be the new value of Walmart's cost of equity?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?
- 1) 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? 2) A firm with wD = 0.35 and wS = 0.65 plans to issue another $100 million of permanent debt. The firm's tax rate is 21%. The bonds will be issued at par with coupon rate = rD = 7%/year. The firm's WACC is 11%/year. By how much will the new debt change the value of the firm, and who will receive this value? A) Firm value will increase by $21 million, and all $21 million will go to the shareholders B) Firm value will increase by $9 million, and 35% will go to the bondholders, 65% to the shareholders C) Firm value will increase by $18.6 million, and 35% will go to the bondholders, 65% to the stockholders D) Firm value will increase by $21 million, and all $21 million will go to the…A firm has an expected return on equity of 16% and an after-tax cost of debt of 8%. What debt-equity ratio should be used in order to keep the WACC at 12%? 0.75:1 1.50:1 O 1:1 0.50:1A firm has an asset turnover ratio of 5.0. Its plowback ratio is 50%, and it is all-equity-financed. If the profit margin of the firm is 3%, what is the maximum payout ratio that will allow it to grow at 5% without resorting to external financing? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Maximum payout ratio %