[Each part is independent.]a)Sungsam Corporation, a US-based conglomerate, is considering expanding its operations inIndia. As the group's chief financial officer, you are asked to estimate the firm's weightedaverage cost of capital.Sungsam has 1 million shares of common stock outstanding with a market price of $12 pershare. The firm's outstanding annual coupon bonds have ten years to maturity, a face value of$5 million ($1000 per bond), a coupon rate of 10% and are priced at $1,000. The risk-free rateis 7% and analysts' expected return for the market is 14%. Sungsam's stock has a beta of 1.2and the firm is in the 34% tax bracket.What is the firm's WACC?When the project's risk is not the same as the average risk of the company's existing projects,how should the company cost of capital be used in the NPV analysis for the project?b)c)Sungsam is a conglomerate consisting of an electronics division and a shipping division. Theperformance of the electronics division fluctuates a great deal with the state of the economywhile the performance of the shipping division tends to be more steady. If Sungsam uses itsWACC to evaluate all investment projects, how would this influence the acceptance orrejection of projects in the two divisions?

a) Sungsam Corporation, a US-based conglomerate, is considering expanding its operations in India. As the group's chief financial officer, you are asked to estimate the firm's weighted average cost of capital. Sungsam has 1 million shares of common stock outstanding with a market price of $12 per share. The firm's outstanding annual coupon bonds have ten years to maturity, a face value of $5 million ($1000 per bond), a coupon rate of 10% and are priced at $1,000. The risk-free rate is 7% and analysts' expected return for the market is 14%. Sungsam's stock has a beta of 1.2 and the firm is in the 34% tax bracket. What is the firm's WACC?

a) Sungsam Corporation, a US-based conglomerate, is considering expanding its operations in India. As the group's chief financial officer, you are asked to estimate the firm's weighted average cost of capital. Sungsam has 1 million shares of common stock outstanding with a market price of $12 per share. The firm's outstanding annual coupon bonds have ten years to maturity, a face value of $5 million ($1000 per bond), a coupon rate of 10% and are priced at $1,000. The risk-free rate is 7% and analysts' expected return for the market is 14%. Sungsam's stock has a beta of 1.2 and the firm is in the 34% tax bracket. What is the firm's WACC?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Machinal Corp. is an all-equity firm with 22,000 shares of stock outstanding with a market price of $27 a share. The current cost of equity is 12 percent, and the tax rate is 21 percent. The firm is considering adding $225,000 of debt with a coupon rate of 6.25 percent to its capital structure. The debt will sell at par. What will be the levered value of the equity? Also, briefly discuss the important concept of leverage to a company.
Robert Downey is the new finance manager in Avengers Corporation. The companies were considering expanding their business internationally. Currently the 9-month treasury bills are at 5.2 percent and the company risk premium is at 10 percent. The domestic beta is estimated at 1.2 while the international beta at 1.45. The company's capital structure comprises of 40 percent debts and the balance is equity. He also has gathered the other financial details as following: Assumptions Domestic International (%) (%) 8 12.5 Cost of debt, before tax Corporate income tax Return on market portfolio 20 30 15.0 18 Based on the information given, compute the Weighted Average Cost of Capital (WACC) for both domestic and international company.
Assume that you were recently hired as assistant to Jerry Lehman, financial VP of Coleman Technologies. Your first task is to estimate Coleman’s cost of capital. Lehman has provided you with the following data, which he believes is relevant to your task: The firm’s marginal tax rate is 40%. The current price of Coleman’s 12 % coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Coleman does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $113.10. Coleman would incur flotation costs of $2 per share on a new issue. Coleman’s common stock is currently selling at $50 per share. Its last dividend (D0) was $4.19, and dividends are expected to grow at a constant rate of 5% in the foreseeable future. Coleman’s beta is 1.2, the yield on Treasury bonds is 7%, and the market risk…
3. Toran plc. is an all-equity financed firm and generates earnings of £200 per year. Its current required rate of return on equity is 10% per annum. It is planning to issue corporate debt at a rate of 8% to achieve a debt-equity ratio of 50%. Toran plc. Assume that debt and earnings are perpetuities. What happens to the firm value after the debt issuance? Assume there are perfect capital markets. 100 0 200 0 250 0 400 0 450 0
Answer please ABC questions. thanks
Ruby's Corporation needs to raise up its capital to RM80 million to expand its business. It plans to issue 20 million shares with a market value of RM2.50 per share, and the remaining of 30 million will be a debt financing through bonds. The par value and market value of each bond is RM1,000. The bonds pay annual interest before tax of 6.7%. The equity beta of firm is 1.5. The yield on risk free investment is 3% per year and the equity risk premium is approximately at 12% per year. The firm pays taxation at the annual rate 30%. From the above information, you are required to calculate: i. the after -tax cost of debt. ii. the cost of firm's equity. iii. the weighted average cost of capital based on your answers in part (i) and (ii).
A firm is currently an all equity firm that has 510,000 shares of stock outstanding with a market price of $53.60 a share. The current cost of equity is 10.5 percent and the tax rate is 25 percent. The firm is considering adding $7.10million of debt with a coupon rate of 6 percent to its capital structure. The debt will be sold at par value. What is the levered value of the equity ?
Kaur Resources is an unlevered firm with a total market value of $460,000 and 10, 000 shares of stock outstanding. The firm has expected EBIT of $22, 000 if the economy is normal and $35, 000 if the economy booms. The firm is considering a bond issue of $73, 600 with an attached interest rate of 6.8 percent. The bond proceeds will be used to repurchase shares. The tax rate is 21 percent. What will be the earnings per share after the repurchase if the economy is normal? Multiple Choice $2.02 $1.70 $1.60 $2.62 $1.34
West Central plc has been quoted on the London Stock Exchange for 10 years. Analysis of data from the last 10 years suggests that the company has an equity beta of 1.20. The company has 60 % of equity and 40 % of debt. The current market value of West Central plc is $ 100 million. The company is going to undertake a project that has a similar beta to its average assets. The project is expected to be financed entirely by equity. As a result of this financing option and the undertaking of the project, the company will have 70 % of equity and 30 % of debt measured at market values. The risk-free rate is expected to be 5 % per annum and the market is expected to return 10 % per annum. West Central plc pays corporate tax at 40 %. The company's debt is thought to be risk-free. a ) Calculate the company's beta before the proposed project. b) Calculate the company's market value after the proposed project and the financing option. c) Calculate the Net Present Value of the project. d)…

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