Big Door Company has 8.7 million shares outstanding, which are currently trading for about $13 per share and have a levered equitybeta of 1.2. Big Door has 19,900 outstanding bonds, with a 4% coupon rate, payable semi-annually and due in 10 years. The bonds arerated BBB. Currently the credit spread for BBB is 178 basis points over equivalent-maturity Government of Canada debt. The currentyield on 10-year Canada bonds is 5%, compounded semi-annually. The risk-free interest rate is 2%, and the market risk premium is6.6%. The company has a 35% tax rate. (Do not round intermediate calculations.)a. Calculate Big Door's WACC. (Round your answer to 2 decimal places.)WACCb. Calculate Big Door's unlevered beta, using the following formula: (Round your answer to 2 decimal places.)Pleveret Pdebtx (1–Tc)×D/EBU1+(1–Tc)×D/EesUnlevered betac. If Big Door was 50% debt-financed, what would be its WACC? Assume that the beta of its debt is unchanged by the capital structurechange. (Round your answer to 2 decimal places.)WACC

WACC: Weighted Average Cost of Capital represents the firm's total cost of capital. It is computed…

a. Calculate Big Door's WACC. (Round your answer to 2 decimal places.) WACC b. Calculate Big Door's unlevered beta, using the following formula: (Round your answer to 2 decimal places.) Pleveret Pdebtx (1–Tc)×D/E 1+(1-Tc)xD/E Bu = Unlevered beta c. If Big Door was 50% debt-financed, what would be its WACC? Assume that the beta of its debt is unchanged by the capital structure change. (Round your answer to 2 decimal places.)

a. Calculate Big Door's WACC. (Round your answer to 2 decimal places.) WACC b. Calculate Big Door's unlevered beta, using the following formula: (Round your answer to 2 decimal places.) Pleveret Pdebtx (1–Tc)×D/E 1+(1-Tc)xD/E Bu = Unlevered beta c. If Big Door was 50% debt-financed, what would be its WACC? Assume that the beta of its debt is unchanged by the capital structure change. (Round your answer to 2 decimal places.)

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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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%
Finance
An all-equity firm is considering the following projects: Project Beta IRR W .58 X .87 Y 1.13 Z 1.47 9.0% 9.7 12.1 15.2 The T-bill rate is 4.2 percent and the expected return on the market is 11.2 percent. a. Compared with the firm's 11.2 percent cost of capital, Project W has a expected return, Project Y has a expected return. expected return, Project X has a expected return, and Project Z has a
4. We only have OMR 800,000 to invest. Which do we select based on Weighted average profitability index method ? Project NPV Investment PI A 430,000 500,000 B 241,250 225,000 C 394,250 375,000 D 262,000 575,000
Assume perfect capital markets. A firm has a market value of $30, 000 and debt of $7, 500 horrowed at 7%. The return on equity is 18%. What is the return on equity if the firm was unlevered? (Hint: Think about WACC, WACCL = WACCU)
The Ashwood Company has a long-term debt ratio of 0.50 and a current ratio of 1.60. Current liabilities are $970, sales are $5,175, profit margin is 9.80 percent, and ROE is 17.60 percent. What is the amount of the firm's net fixed assets? Hint: This is another complex problem that requires a number of steps. Remember that CA + NFA=TA. So, if you find CA and TA, then you can solve for NFA Helpful Equations: Long-term debt ratio - LTD/(LTD + TE) CR-CA/CL PM-NI / Sales ROE-NI/TE O $3,851.53 O $3,601.92 O $5,181.07 O $6.733.07 O $2.881.53
If a bank has a leverage ratio of 0.5 and a return on assets of 1%, what is its return on equity? Select one: OA 0.2% O B. 2% OC 5% O D. 20%
h. Calculate the total return % in each of the following instances: a. Do = $2.00, dividend growth = 4%, Po = $50, P: = $60 b. Po = $32, Dividend yield % = 5%, P1 = $30 c. Dividend Yield = 4%; Capital Gain = %3D $20; DI = $4
Suppose that you have the following utility function: U=E(r) – ½ Aσ2 and A=3 Suppose that you have $10 million to invest for one year and you want to invest that money into ETFs tracking the S&P 500 (US) and S&P/TSX 60 (Canada) index, which are often used as proxies for the US and Canadian stock markets, respectively, and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-bill is 0.35% per annum. You have found two ETFs that you are interested in. From a set of their historical data between 2001 and 2019, you have estimated the annual expected returns, standard deviations, and covariance as follows: ETFUS : E(r)= 0.070584 0.173687 ETFCDA : E(r)= 0.073763 0.16816 Covariance between ETFUS and ETFCDA = 0.02397 Answer the following questions using Excel: What is the optimal portfolio of ETFUS and ETFCDA? Also submit an Excel file to show your work.
1. Using capital asset pricing model, compute for the cost of equity with risk-free rate of 4%, market return on 8%, beta of 1.5 and tax rate of 30%. 2. With risk-free rate of 5%, beta of 1.5, market return of 8%, prevailing credit spread (rate applied on debt on top of risk-free rate) of 3%, tax rate of 30% and equity ratio of 30%, compute for the weighted average cost of capital. 3. The appropriate WACC of a company is 8%. With risk-free rate of 4%, market return of 10%, prevailing credit spread of 2%, tax rate of 30% and equity ratio of 40%, compute the beta.
What is the Step by Step of solving L?
M3

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