(b) Blues, Inc., is a multinational corporation (MNC) located in the United States.Blues would like to estimate its weighted average cost of capital. On average, yieldsof bonds issued by Blues is 9 percent. Currently, T-bill rates are 3 percent.Furthermore, Blues' stock has a beta of 1.5, and the return on the Wilshire 5000stock index is expected to be 10 percent. The targeted capital structure of Blues'consists of 30 percent debt and 60 percent equity. If Blues tax rate is 60 percent tax,calculate the weighted average cost of capital for Blues.(c) Messan Co. is a US firms borrows U.S. funds at an interest rate of 10 percentper year. The beta is 1.0. The long-term annualized risk-free rate in the UnitedStates is 6 percent. The stock market return in the United States is expected to be16 percent annually. Messan's target capital structure is 40 percent debt and 60percent equity. Messan Co. is subject to a 30 percent corporate tax rate. Estimatethe cost of capital for Messan Co.

Weighted average cost of capital is weighted considering the weight of bond and weight of equity of…

Blues, Inc., is a itional corporation (MNC) located in the lues would like to estimate its weighted average cost of capital. On ave f bonds issued by Blues is 9 percent. Currently, T-bill rates are urthermore, Blues' stock has a beta of 1.5, and the return on the W tock index is expected to be 10 percent. The targeted capital structu onsists of 30 percent debt and 60 percent equity. If Blues tax rate is 60 alculate the weighted average cost of capital for Blues. :) Messan Co. is a US firms borrows U.S. funds at an interest rate o er year. The beta is 1.0. The long-term annualized risk-free rate in tates is 6 percent. The stock market return in the United States is exp 6 percent annually. Messan's target capital structure is 40 percent ercent equity. Messan Co. is subject to a 30 percent corporate tax ra e cost of capital for Messan Co

Blues, Inc., is a itional corporation (MNC) located in the lues would like to estimate its weighted average cost of capital. On ave f bonds issued by Blues is 9 percent. Currently, T-bill rates are urthermore, Blues' stock has a beta of 1.5, and the return on the W tock index is expected to be 10 percent. The targeted capital structu onsists of 30 percent debt and 60 percent equity. If Blues tax rate is 60 alculate the weighted average cost of capital for Blues. :) Messan Co. is a US firms borrows U.S. funds at an interest rate o er year. The beta is 1.0. The long-term annualized risk-free rate in tates is 6 percent. The stock market return in the United States is exp 6 percent annually. Messan's target capital structure is 40 percent ercent equity. Messan Co. is subject to a 30 percent corporate tax ra e cost of capital for Messan Co

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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MacG, Inc. has an equity market capitalization of $7,800,000. Its equity beta is 4.2. The risk-free rate and market return are expected to be 1.4% and 7.2%, respectively. MacG also has 3,500,000 in bonds that have a yield-to-maturity of 5.4%. If MacG faces a tax rate of 14%, which is the weighted average cost of capital for MacG? Edit View Insert Format Tools Table 12pt ✓ Paragraph В І U Al А ✓ T² V 20 ► V :
Optimist Company can sell common shares at $30 per share and can obtain debt funding at 8 percent. It has a marginal income tax rate of 25 percent. The yield on US Treasury securities is 3 percent. The market risk premium is 6.0 percent, and the firm's beta is 0.9. It has a targeted debt-to-equity ratio of 1:1. What is its after-tax cost of debt? Maximum number of characters (including HTML tags added by text editor): 32,000 Show Rich-Text Editor (and character count)
Labrador technologies Inc. plans to become public soon. The board of directors would like to know the value of common equity and have asked for your opinion. The firm has $1,249,917 in preferred equity and the market value of its outstanding debt equals $2,049,396. The WACC for this firm is estimated to be 8.92%. For this example assume the current assets are zero. Use the DCF valuation model with the expected FCFs shown below; year 1 represents one year from today and so on. The company expects to grow at a 3.0% rate after Year 5. Rounding to the nearest penny, what is the value of common equity? Free Cash Period Flow Year 1 $1,370,274 Year 2 $1,761,479 Year 3 $1,909,652 Year 4 $2,361,090 Year 5 $2,744,645
Having successfully issued their preference shares, Micron Industries is seeking to determine its Weighted Average Cost of Capital, so that it can be used as the company’s required return in evaluating upcoming capital projects. Utilising information from Micron Industries’ financial statements, presented on page 1, together with current information, the company has the following capital structure: Debt: Bonds outstanding has a face value of $90,000,000, currently selling at 98% of par. The coupon rate on these bonds is 9% paid semi-annually and there is 12 years left to maturity. (Hint: you can use the lowest multiple of $1,000 for the YTM calculation only) Common stock: 144,000,000 shares of common stock outstanding with a market price of $27.30. Preferred stock: 100,000,000 shares of preferred shares outstanding with a market price of $60. The annual dividend is $4.50.Page 4 of 6 Additional Information:  The Company’s tax rate is 35%.  The current risk free rate is 3.50%; The…
EBOOK Terrell Trucking Company is in the process of setting its target capital structure. The CFO believes that the optimal debt-to-capital ratio is somewhere between 20% and 50%, and her staff has compiled the following projections for EPS and the stock price at various debt levels: Projected EPS Debt/Capital Ratio 20% 30 40 50 Projected Stock Price $3.30 $32.00 3.55 38.00 3.70 35.50 3.55 34.00 Assuming that the firm uses only debt and common equity, what is Terrell's optimal capital structure? Choose from the options provided above. Round your answers to two decimal places. % debt % equity At what debt-to-capital ratio is the company's WACC minimized? Choose from the options provided above. Round your answer to two decimal places.
Sierra Vista Industries (SVI) wishes to estimate its cost of capital for the use in the analyzing projects that are similar to those that already exist. The firm’s current capital structure in terms of market value includes 40 percent debt, 10 percent preference shares and 50 percent ordinary shares. The firm’s debt has as average yield to maturity of 8.3 percent. Its preference shares have a GH¢ 70 par value, an 8 percent dividend, and are currently selling for GH¢ 76 per share. SVI’s beta is 1.05, risk-free rate is 4 percent and return on the S&P 500 (the market proxy) is 11.4 percent. SVI is in the 40 percent marginal tax bracket. 1. what are SVI’s pre-tax costs of debt, preference shares and ordinary shares? 2. Calculate SVI’s weighted average cost of capital (WACC) on both a pre-tax and an after-tax basis. Which WACC should SVI use when making investment decisions? 3. SVIS is contemplating a major investment that is expected to increase both its operation and financial…
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XYZ is comparing two different capital structures. Plan I would result in 13,000 shares of stock and $130,500 in debt. Plan II would result in 10,000 shares of stock $243,600 in debt. The interest rate on the debt is 10%. a). Ignoring taxes, compare plans I and II to an all equity plan assuming that EBIT will be $56,000. The all equity plan will result in 16,000 shares of stock OUTSTANDING. Which of the 3 plans has the highest EPS? And which has the lowest? b). In part A, what are the break-even levels of EBIT for plan I compared to an all equity plan? What about for plan II I compared to an all equity plan? Is one higher than the other? Why (explain). c). Ignoring taxes, when will EPS be identical for plans I and II?

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