Citigroup SmithBarney (Reais). In a report dated June 17, 2003, Citigroup SmithBarney calculated a WACC for Petrobrás denominated in Brazilian reais (R$). Evaluate the methodology and assumptions used in this cost of capital calculation. Risk-free rate (Brazilian C-Bond) Petrobrás levered beta Market risk premium Cost of equity Cost of debt Brazilian corporate tax rate Long-term debt ratio (% of capital) WACC (RS) 9.90% 1.40 5.50% 17.60% 10.00% 34.00% 50.60% 12.00%

Citigroup SmithBarney (Reais). In a report dated June 17, 2003, Citigroup SmithBarney calculated a WACC for Petrobrás denominated in Brazilian reais (R$). Evaluate the methodology and assumptions used in this cost of capital calculation. Risk-free rate (Brazilian C-Bond) Petrobrás levered beta Market risk premium Cost of equity Cost of debt Brazilian corporate tax rate Long-term debt ratio (% of capital) WACC (RS) 9.90% 1.40 5.50% 17.60% 10.00% 34.00% 50.60% 12.00%

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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Simple Tech Inc is an Australian company operating in a pure imputation tax system. It is currently financed entirely (100%) by equity and has a beta of 0.8. After examining its capital structure, Simple Tech finds that the optimal capital structure can be achieved at D/E ratio of 0.4. The before- tax cost of debt capital for Simple Tech at the optimal capital structure is 10% p.a. The risk-free rate and market risk premium are 5% p.a. and 7% p.a., respectively. If the statutory corporate tax rate is 30%, which of the following is closest to the cost of equity at the optimal capital structure (using the approach covered in the lecture)? O 12.03% p.a. 12.84% p.a. 11.69% p.a. 10.60% p.a. 12.17% p.a.
URGENT PLEASE d. Calculate the firm's weighted average cost of capital using the capital structure weights shown in the following table . (Round answer to the nearest 0.01%)
Ganado's Cost of Capital. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.30%, the company's credit risk premium is 3.60%, the domestic beta is estimated at 0.94, the international beta is estimated at 0.61, and the company's capital structure is now 75% debt. The expected rate of return on the market portfolio held by a well-diversified domestic investor is 9.80% and the expected return on a larger globally integrated equity market portfolio is 8.60%. The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is 7.60% and the company's effective tax rate is 42%. For both the domestic CAPM and ICAPM, calculate the following: a. Ganado's cost of equity b. Ganado's after-tax cost of debt c. Ganado's weighted average cost of capital a. Using the domestic CAPM, what is Ganado's cost of equity? % (Round to two decimal places.)
Financial statements Net operating revenues Operating expenses Operating income Non-operating items: Interest expense Other Net income Total assets Total shareholders' equity S 2020 33.8 28.9 4.9 (1.2) (0.6) 3.1 $ $ 200.0 78.0 - X
B.F. Pierce & Company is considering changing its capital structure. The company currently has no debt and no preferred stock, but it would like to add some debt to take advantage of low interest rates and the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: 8.66% 9.21% 8.83% Market Debt-to- Value Ratio 9.07% (WD) 0.00 0.20 0.40 0.60 0.80 Market Equity-to- Value Ratio (WE) 1.00 0.80 0.60 0.40 0.20 Market Debt-to- Equity Ratio (D/E) 0.00 0.25 0.67 1.50 4.00 Before-Tax Cost of Debt (rD) 5.00% The company uses the CAPM to estimate its cost of common equity. Currently the risk-free rate is 4%, the market risk premium is 6%, and the company's tax rate is 25%. The company estimates that its beta now (which is unlevered because it currently has no debt) is 0.8. Based on this information, what is the firm's weighted average cost of capital at its optimal capital structure? 6.00% 7.00% 8.00% 9.00%
Ganado and Equity Risk Premiums. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.20%, the company's credit risk premium is 4.50%, the domestic beta is estimated at 1.01, the international beta is estimated at 0.75, and the company's capital structure is now 40% debt. The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is 7.90% and the company's effective tax rate is 42%. Calculate both the CAPM and ICAPM weighted average costs of capital for the following equity risk premium estimates. a. 8.70% b. 7.80% c. 6.00% d. 5.10% W
A company is considering its optimal capital structure. The firm currently has 1 million shares outstanding at $ 20 per share (tax rate = 40%) and a debt balance of $5 million. Currently, its (levered) beta is 1.5 and its ERP is 5.5%. The current risk-free rate is 5%. Your research indicate the following ratings and pre-tax cost of debt across the different debt ratios: D/(D+E) Rating Pre-tax cost of debt 0% AAA 10% 10% AA 10.5% 20% A 11% 30% BBB 12% 40% BB 13% 50% B 14% 60% CCC 16% 70% CC 18% 80% C 20% 90% D 25% a. Using the optimal WACC approach, what is the firm's optimal debt ratio? b. Calculate the company's unlevered value, assuming that the probability of default is 5% and the company loses 30% of its value in the event of a default.
What is the likely frequency of the data (daily, monthly, yearly)? Compare to historical historical data in the picture to justify the answer.
Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 35% long-term debt, 20% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 21%. Debt The firm can sell for $1030 a 13-year, $1,000-par-value bond paying annual interest at a 7.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock 8.5% (annual dividend) preferred stock having a par value of $100 can be sold for $90. An additional fee of $4 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $60 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.75 ten years ago to the $5.41 dividend payment, D0, that the company just recently made. If the…
Assuming that there is an unlevered firm and a levered firm. The basic information is given by the following table. Table1: Information of the firms Unlevered firm Levered firm EBIT 20000 20000 Interest Taxable income Tax (tax rate: 34%) Net income CFFA Assuming that: The size of the debt is 8000; cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5 Fill in the blanks What is the present value of the tax shield? Calculate the following values:a) Calculate value of unlevered firm; b) value of the levered firm; c) equity value; d) Cost of equity; e) cost of capital; f) systematic risk of the equity Suppose that the firm changes its capital structure so that the debt-to-equity ratio is 1.6, then recalculate the systematic risk of the equity If the firm now has the following project: in year 0, the cashflow is 5000, in year 1, the cashflow is -5500. Based on the IRR rule,…

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