At the end of 2Q2018 (June 2018) Tesla, Inc. (TSLA) had $3.9 billion in commonequity, $11.6 billion in debt, and no preferred equity. Tesla Inc. had an estimatedWACC of 7.55%, an estimated effective rate on debt of 5.85%, and you may assumea tax rate of 21%. Image that the Board of Directors had replaced CEO Elon Muskwith you. How much return do your TSLA equity investors expect?16.24 percent420.00 percent19.36 percent41.28 percent9.33 percent

Weighted average cost of capital is mathematically represented as:WA = Wd * Cd * (1 - Tax) + We *…

Answered: At the end of 2Q2018 (June 2018) Tesla,…

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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Similar questions

The W.C. Pruett Corp. has $800,000 of interest-bearing debt outstanding, and it pays an annual interest rate of 7%. In addition, it has $800,000 of common equity on its balance sheet. It finances with only debt and common equity, so it has no preferred stock. Its annual sales are $2.16 million, its average tax rate is 25%, and its profit margin is 3%. What are its TIE ratio and its return on invested capital (ROIC)? Round your answers to two decimal places. TIE: ROIC: X %
Home Depot entered fiscal 2017 with a total capitalization of $21,904 million. In 2017, debt investors received interest income of $877 million. Net income to shareholders was $8,654 million. (Assume a tax rate of 21%.) Calculate the economic value added assuming its cost of capital is 10%. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
Baker Industries’ net income is $26000, its interest expense is $6000, and its tax rate is 40%. Its notes payable equals $26000, long-term debt equals $70000, and common equity equals $255000. The firm finances with only debt and common equity, so it has no preferred stock. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. What are the firm’s ROE and ROIC? Round your answers to two decimal places. Do not round intermediate calculations. ROE fill in the blank 2% ROIC fill in the blank 3% Please don't provide image based solution thanks
Charisma, Inc., has debt outstanding with a face value of $5.1 million. The value of the firm if it were entirely financed by equity would be $22 million. The company also has 370,000 shares of stock outstanding that sell at a price of $47 per share. The corporate tax rate is 21 percent. What is the decrease in the value of the company due to expected bankruptcy costs? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Financial distress costs
Google Corporation has no debt on its balance sheet in 2008, but paid $1.6 billion in taxes. Assume that Google's marginal tax rate is 35% and Google's borrowing cost is 5%. Assume that investors hold Google stock in retirement accounts that are free from personal taxes. If Google were to issue sufficient debt to reduce its taxes by $3 billion per year permanently, then the value that would be created is closest to ($ billion) (2 decimal places):
Meyer Inc's total invested capital is $610,000, and its total debt outstanding is $185,000. The new CFO wants to establish a total debt to total capital ratio of 55%. The size of the firm will not change. How much debt must the company add or subtract to achieve the target debt to capital ratio?
Broward Manufacturing recently reported the following information: Net income $770,000 ROA 7% Interest expense $292,600 Accounts payable and accruals $1,000,000 Broward's tax rate is 40%. Broward finances with only debt and common equity, so it has no preferred stock. 40% of its total invested capital is debt, while 60% of its total invested capital is common equity. Calculate its basic earning power (BEP), its return on equity (ROE), and its return on invested capital (ROIC). Do not round intermediate calculations. Round your answers to two decimal places. ВЕР % ROE % ROIC
In 2018, Caterpillar Inc. had about 710 million shares outstanding. Their book value was $38.0 per share, and the market price was $85.00 per share. The company's balance sheet shows that the company had $29.50 billion of long-term debt, which was currently selling near par value. a. What was Caterpillar's book debt-to-value ratio? (Do not round intermediate calculations. Enter your answer as a decimal rounded to 2 decimal places.) b. What was its market debt-to-value ratio? (Do not round intermediate calculations. Enter your answer as a decimal rounded to 2 decimal places.) c. Which measure should you use to calculate the company's cost of capital? a. Book debt-to-value ratio b. C. Markeet debt-to-value ratio Measure
Appliances, Inc. has no debt outstanding, and its financial position is given by the following data: Assets (market value = book value) $5,000,000 EBIT $800,000 Cost of equity 12% Stock price $10 Shares outstanding 500,000 Tax rate 25% The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 20% debt based on market values, its cost of equity will increase to 13% to reflect the increased risk. Bonds can be sold at a cost of 6%. Appliance, Inc. is a no-growth firm. Hence, all its earnings are paid out as dividends. Earnings are expected to be constant over time. As a creditor, you are concerned about the company’s ability to repay its debt and interest. What is the new times interest earned?
Broward Manufacturing recently reported the following information: Net income ROA BEP: 26.73 Interest expense $102,120 Accounts payable and accruals $950,000 Broward's tax rate is 25%. Broward finances with only debt and common equity, so it has no preferred stock. 40% of its total invested capital is debt, and 60% of its total invested capital is common equity. Calculate its basic earning power (BEP), its return on equity (ROE), and its return on invested capital (ROIC). Do not round intermediate calculations. Round your answers to two decimal places. ROE: 73.60 ROIC: 44.55 % % $276,000 % 8%
2. For the year 2021, Rattner Robotics had $5 million in operating income (EBIT). Its depreciation expense was $1.5 million, its interest expense was $1 million, and its corporate tax rate was 35%. At the end of year 2021, it had $10 million in operating current assets, $3 million in accounts payable, $1 million in accruals, and $2 million in notes payable. Assume Rattner has no excess cash and no other current liabilities. Assume that Rattner's only noncash item was depreciation. a) What was the company's net income for the year 2021?tion bona 158 b) What was its net operating working capital (NOWC) for the year 2021? c) Rattner reported $4 million in capital expenditure for the year of 2021. Rattner's NOWC for the prior year (year 2020) is $5.5 million. What is the company's free cash flow (FCF) for the year of 2021? (Hint: you need your results from part b to calculate this question).
A company with no debt financing has EBIT of $1000. The corporate tax rate is 40%. So the company's net income is $600. What would be the return to all investors if the company had been financed partly with debt so that interest expenses was $200?

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