SSX Ltd has 5 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 100,000 bonds (face value $1,000). The common shares are selling for $25 per share, the preferred shares are selling for $10 per share, and the bonds are selling for 101% of par. The cost of equity is 20%. The cost of preference shares is 15% and the cost of debt is 10%, with the tax rate being 20%. What is SSX's WACC? O 15.9% 14.7% 12.5% 15.5%

SSX Ltd has 5 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 100,000 bonds (face value $1,000). The common shares are selling for $25 per share, the preferred shares are selling for $10 per share, and the bonds are selling for 101% of par. The cost of equity is 20%. The cost of preference shares is 15% and the cost of debt is 10%, with the tax rate being 20%. What is SSX's WACC? O 15.9% 14.7% 12.5% 15.5%

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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Hatch Corporation's target capital structure is 40 percent debt, 50 percent common stock, and 10 percent preferred stock. Information regarding the company's cost of capital can be summarized as follows: • The company's bonds have a nominal yield to maturity of 7 percent. • The company's preferred stock sells for $42 a share and pays an annual dividend of $4 a share. • The company's common stock sells for $28 a share, and is expected to pay a dividend of $2 a share at the end of the year (i.e., Di = $2.00). The dividend is expected to grow at a constant rate of 7 percent a year. • The firm will be able to use retained earnings to fund the equity portion of its capital budget. • The company's tax rate is 40 percent.
The ABC company currently has $250,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6 percent. Its earnings before interest and taxes (EBIT) are $105,000, and it is a zero-growth company. ABC's current cost of equity is 9.0 percent, and its tax rate is 40 percent. The firm has 20,000 shares of common stock outstanding selling at a price per share of $30.00.Now assume that ABC is considering changing from its original capital structure to a new capital structure with 50 percent debt and 50 percent equity. If it makes this change, its resulting market value would be $900,000. What would be its new stock price per share? Group of answer choices $28.5 $38.5 $32.5 $30.0 $34.5
XRT Infrastructure Corp. has 80,000 bonds outstanding that are selling at 90% of the par value (Bonds are selling at discount). Bonds with similar characteristics are yielding 10.8%. The company also has 4 million shares of common stock outstanding. The stock has a beta of 1.1 and sells for $50 per share. The common shareholder anticipates receiving a dividend that will growth at 0%, based on the fact they received $5 dividend last year. The capital market analysts predict that dividends will continue to grow at the same rate into the foreseeable future. The firm’s tax rate is 28 percent. What would be your estimate of the cost of common stock (cost of equity)? What would be the estimate cost of capital (WACC)?
Wayco Industrial Supply has a pretax cost of debt of 7.6%, a cost of equity of 16.8%, and a cost of preferred stock of 9.1%. The firm has 220,000 shares of common stock outstanding at a market price of $27 a share. There are 25,000 shares of preferred stock outstanding at a market price of $41 a share. The bond issue has a face value of $550,000 and a market quote of 101.2. The company's tax rate is 34%. What is the firm's weighted average cost of capital?
McGonnigal Inc. has expected sales of $50 million. Fixed operating costs are $3 million, and the variable cost ratio is 70 percent. McGonnigal has outstanding a $13 million, 11 percent bank loan and $2 million in 15 percent coupon-rate bonds. McGonnigal has outstanding 250,000 shares of a $10 (dividend) preferred stock and 1 million shares of common stock ($1 par value). McGonnigal’s average tax rate is 35 percent, and its marginal rate is 40 percent. Assume that the average rate does not change with a change in sales and EBIT. What is McGonnigal’s degree of operating leverage at a sales level of $50 million? Round your answer to three decimal places. What is McGonnigal’s current degree of financial leverage? Round your answer to three decimal places. Forecast McGonnigal’s EPS if sales drop to $47.5 million. Round your answer to the nearest cent. $
McGonnigal Inc. has expected sales of $50 million. Fixed operating costs are $3 million, and the variable cost ratio is 75 percent. McGonnigal has outstanding a $9 million, 9 percent bank loan and $4 million in 14 percent coupon-rate bonds. McGonnigal has outstanding 200,000 shares of a $9 (dividend) preferred stock and 1 million shares of common stock ($1 par value). McGonnigal’s average tax rate is 35 percent, and its marginal rate is 40 percent. Assume that the average rate does not change with a change in sales and EBIT. What is McGonnigal’s degree of operating leverage at a sales level of $50 million? Round your answer to three decimal places. What is McGonnigal’s current degree of financial leverage? Round your answer to three decimal places. Forecast McGonnigal’s EPS if sales drop to $48.5 million. Round your answer to the nearest cent. $
Jerry Jeff, Inc. has 14,900 shares of common stock outstanding at a price per share of $77 and the rate of return on the stock is 11.69 percent. The value of Jerry Jeff's debt is $586,800 and the required rate of return on the debt is 6.17 percent. What is the Jerry Jeff's WACC if the tax rate is 21 percent? Multiple Choice 9.82% 8.53% 8.70% 9.38%
Generous Corporation has a cost of equity of 10.8 percent, the YTM on the company's bonds is 6.3 percent, and the tax rate is 35 percent. The company's bonds sell for 103.6 percent of par. The debt has a book value of $420,000 and total assets have a book value of $956,000. If the market-to-book ratio of equity is 2.86 times, what is the company's WACC? 8.90% 780% 9.32% 792%
TKK Co., a firm that has 10,000 preferred outstanding shares, determined its financial break-even point at P540,000. The tax rate applicable to the firm is 50%. The dividend yield for the preferred shares is 25% and these shares are trading at a price of P100. How much is the annual interest paid by TKK Co.?
Blue Co., a firm that has 10,000 preferred outstanding shares, determined its financial break-even point at P540,000. The tax rate applicable to the firm is 50%. The dividend yield for the preferred shares is 25% and these shares are trading at a price of P100. How much is the annual interest paid by Blue Co.?
The company Nexti AS has 2 million shares outstanding with a market price of NOK 30 per share and with an equiry beta equal to 1.5. The book value of equity is NOK 40 million. The company also has NOK 70 million in long-term debt, the debt beta is equal to zero. Risk-free interest rate is 3% and the market risk premium is 7%. The company pays 30% income tax. (There is nobody investor tax, Se=Sk=0) a) What would the value of the company be worth if it were 100% equity financed? b) What would the company's cost of equity be if the company is financed with 100% equity?
Umbrella Corp.'s common stock currently is selling at $23 per share. There are 180,000\\noutstanding shares of common stock. Umbrella Corp also has 50,000 outstanding preferred\\nshares that are currently selling at $35 per share. Umbrella Corp also has issued 5,000 bonds\\nwhich are each currently selling at $968. The cost of capital for Umbrella Corp. is 13% for its\\ncommon stock, 10% for its preferred shares, and 8% for its bonds. Given it has a tax rate of 30%, \ \nwhat is Umbrella Corp.'s adjusted weighted-average cost of capital?

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