Based on your financial statement analysis on Gold Limited (“Gold”), you noted as it has a target debt-to-equity structure of 0.75. Gold’s shares currently trade at $6.60. Dividends paid last year were $0.50 and this is expected to grow at 3% per year to perpetuity. Its pre-tax cost of debt is 8%. Market research also revealed as follows: • Inflation rate = 2% • Yield on government securities = 4% • Market risk premium = 6% • Tax rate = 20% Solve for Gold’s weighted average cost of capital.

Based on your financial statement analysis on Gold Limited (“Gold”), you noted as it has a target debt-to-equity structure of 0.75. Gold’s shares currently trade at $6.60. Dividends paid last year were $0.50 and this is expected to grow at 3% per year to perpetuity. Its pre-tax cost of debt is 8%. Market research also revealed as follows: • Inflation rate = 2% • Yield on government securities = 4% • Market risk premium = 6% • Tax rate = 20% Solve for Gold’s weighted average cost of capital.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 15P

See similar textbooks

Similar questions

What is the capital gains yield on these financial accounting question?
Use the following information to compute the weighted average cost of capital (WACC) of GoGo Inc. ▪ Debt information: The beta of GoGo Inc. stock is 1.5 . Risk-free rate is 4% • Market return is 15% • GoGo's capital structure is 65% equity and 35% debt. The tax rate is 21%. 14.62% Bonds will mature in 9 years. The maturity value is $1,000. GoGo's WACC is.. 15.47% The coupon rate is 8%, with semiannual payments. The current bond price is $1,015. 12.20% 13.32%
The following data refers to Company Z: - Beta = 1.7 - Required return on debt (yield to maturity on a long term bond) = 3.1% - Tax rate = 21% - 30-year government bond = 2.3% - Market risk premium can be assumed to be 5% Estimate the cost of capital (WACC) for Company Z.
What is the value of equity and debt?
Whirlpool manufactures and sells home appliances under various brand names. IBM develops and manufactures computer hardware and offers related technology services. Target operates a chain of general merchandise discount retail stores. The data in the following table apply to these companies (dollar amounts in millions). For each firm, assume that the market value of the debt equals its book value. REQUIRED a. Assume that the intermediate-term yields on U.S. government Treasury securities are 3.5%. Assume that the market risk premium is 5.0%. Compute the cost of equity capital for each of the three companies. b. Compute the weighted-average cost of capital for each of the three companies. c. Compute the unlevered market (asset) beta for each of the three companies. d. Assume that each company is a candidate for a potential leveraged buyout. The buyers intend to implement a capital structure that has 75% debt (with a pretax borrowing cost of 8.0%) and 25% common equity. Project the weighted-average cost of capital for each company based on the new capital structure. To what extent do these revised weighted-average costs of capital differ from those computed in Requirement b?
Suppose the Schoof Company has this book value balance sheet: The notes payable are to banks, and the interest rate on this debt is 10%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of the companys permanent capital structure. The long-term debt consists of 30,000 bonds, each with a par value of 1,000, an annual coupon interest rate of 6%, and a 20-year maturity. The going rate of interest on new long-term debt, rd, is 10%, and this is the present yield to maturity on the bonds. The common stock sells at a price of 60 per share. Calculate the firms market value capital structure.
Here is some information about Stokenchurch Inc.: Beta of common stock = 1.2 Treasury bill rate = 4% Market risk premium = 6.5% Yield to maturity on long-term debt = 7% Book value of equity = $340 million Market value of equity = $680 million Long-term debt outstanding = $680 million Corporate tax rate = 21% What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) WACC %
Doha plc has some surplus funds that it wishes to invest in bonds. The company requires a return of 15% on bonds, and the finance director has asked you to analyse whether it should invest in either of the following bonds that are available:Company A: Expected profit 12% bonds, redeemable at par at the end of two more years, with a current market value of QAR 95 per QAR 100 bondCompany B: Expected profit 8% bonds, redeemable at QAR110 at the end of two more years, with a current market value of QAR 95 per QAR 100 bonda. Calculate the expected value (price) of the two bonds and evaluate if either offer an appropriate return for Doha Plc.b. Critically evaluate what would be the impact on the price of bonds if Doha Plc reduces their required return.c. Critically evaluate and discuss the factors that should be considered by the directors of a company when choosing whether to use debt or equity finance for a new projectd. Recently one director has attended a finance conference, on their…
Calculate WACC from following data. Risk free rate 1.63% total debt $78.93 billion Market Cap $2580 billion Beta 0.86 Corporate Bond rate 3.10% CAPM S&P historical return 5.90% Tax Rate 21% please show steps
Give typing answer with explanation and conclusion Jenkins, Inc., has equity with a market value of $23.5 million and debt with a market value of $11.75 million. The cost of debt is 8 percent per year. Treasury bills that mature in one year yield 4 percent per year, and the expected return on the market portfolio over the next year is 10 percent. The beta of the company’s equity is 1.2. The firm pays no taxes. a. What is the company’s debt-equity ratio? (Do not round) a. Debt-equity ratio b. weighted average cost of capital c. cost of capital
Kindly help me with accounting questions
The company you work for wants you to estimate the company’s WACC; but before you do so, you need to estimate the cost of debt and equity. You have obtained the following info. 1) the firms non-callable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000 and a market price of $1,225.00. 2) thecompany’s tax rate is 40%. 3) the risk-free rate is 4.50%, the market risk premium 5.50%, and the stocks betta is 1.20. 4) the target capital structure consists of 35% debt and the balance common equity. The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. Calculate the company’s cost of retained earnings using the CAPM approach.