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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Quebec Corporation, a calendar-year company, had sufficient retained earnings in 2012 as a basis for dividends, but was temporarily short of cash. Quebec declared a dividend ofP100,000 on April 1, 2012, and issued promissory rotes to its shareholders in lieu of cash. The notes, which were dated April 1,2012, had a maturity date of March 31, 2013, and a 10% interest rate. How should Quebec account for the scrip dividend and related interest?* a. Debit Retained Earnings for P110,000 on April, 2012. b. Debit Retained Earnings for P110,000 on March 31, 2013. c. Debit Retained Earnings for P100,000 on April 1, 2012 and debit Interest Expense for P10,000 on March 31, 2013. d. Debit Retained Earnings for P100,000 on April 1, 2012 and debit Interest Expense for P7,500 on December 31, 2012.
Do not copy from any other source. A company finances its operations with 50 percent debt and 50 percent equity. Its net income is I = $30 million and it has a dividend payout ratio of x = 20%. Its capital budget is B = $40 million this year. The interest rate on company's debt is rd = 10% and the company's tax rate is T = 40%. The company's common stock trades at Po = $66 per share, and its current dividend of Do = $4 per share is expected to grow at a constant rate of g = 10% a year. The flotation cost of external equity, if issued, is F = 5% of the dollar amount issued. a) Will the company have to issue external equity (external equity implies issuing new stock while internal equity implies using retained earnings)? b) What is the company's WACC?
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
A company failed to record unrealized gains of $38 million on its debt investments classified as trading securities. Its tax rate is 25%. As a result of this error, total shareholders' equity would be:
Maddux Corporation has an EBIT of $835,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 16 percent and the corporate tax rate is 21 percent. The company also has a perpetual bond issue outstanding with a market value of $2.1 million. What is the value of the company? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Value of the company
Acclaim Entertainment Ltd, which has been trading profitably for many years, is planning to expand the business to meet the increasing demand for its services. The issue price of all shares is $1.25. It plans to invest $4 000 000 to finance this expansion, and as a result achieve an increase in profit before interest on debt and income tax of $800 000. A summary of financial results for the financial year ended 30 June 2022 is presented below: Income Expenses (excluding interest and income tax) Interest expense Profit before income tax Income tax (30%) Profit Earnings per share $ 6 500 000 (4 923 000) (77 000) 1 500 000 450 000 $ 1 050 000 0.25 Management is considering whether to finance the expansion by selling 3 200 000 shares at $1.25 per share or by issuing 8% 10 year debentures at a nominal value of $100 each. Required: (a) Assuming that the company achieves the expected increase in profit from the expansion, what will be the earnings per share for each of the alternative methods…
Tool Manufacturing has an expected EBIT of $74,000 in perpetuity and a tax rate of 21 percent. The company has $131,500 in outstanding debt at an interest rate of 6.8 percent and its unlevered cost of capital is 13 percent. What is the value of the company according MM Proposition I with taxes? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Company value
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 7%. Assume that investors in Google pay a 15% tax rate on income from equity and a 35% tax rate on interest income. If Google were to issue sufficient debt to reduce its corporate taxes by $1 billion per year permanently, then the value that would be created is closest to?
Kobe Capital Corp. recently reported $19,500 of sales, $8,100 of operating costs other than depreciation, and $1,750 of depreciation. It had $9,000 of bonds outstanding that carry a 7.0% interest rate, and its income tax rate was 40%. How much was the firm's earnings before taxes (EBT)? Your answer should be between 8505 and 10280, rounded to even dollars (although decimal places are okay), with no special characters.

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