M3 I run a regression of debt ratios against an independentvariable and arrive at the following:Debt-to-Capital = 0.27 + .15(PPE/Assets). If Krent Foodshas a PPE/Assets ratio of 30% (and other firms in theindustry have a PPE/Assets ratio of 60%), what is thefırm's optimal debt ratio and why?O 4.8% because of Agency CostsO 31.5% because of Agency CostsO 4.8% because of Income StabilityO 31.5% because of Income StabilityO 4.8% because of Few Inside Investors

Debt to Capital = 0.27+0.15 ( PPE/Assets) PPE/Assets Ratio=30% needs to calculate optimal debt…

Answered: Debt-to-Capital = 0.27 +…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 3Q

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K-Life financial services Limited uses risk-adjusted return on capital (RAROC) to measure performance on several aspects. In this regard, imagine that an investment officer wants to execute a transaction with the following characteristics: Probability of default (PD) = 30 basis points Loss given default (LGD) = 55% Exposure at default (EAD) = K 1.45 million Expected loss (EL) = K 2,750 This is a loan to a company in the Agro industrial. The firm’s economic capital (EC) model is based on the 99% confidence level, with an average standard deviation of 2.15%. The risk-free rate of return is 6%. Assume that the bank has set a RAROC hurdle rate of 15% and this transaction has a net profit of K10, 500. REQUIRED: Compute the K-life’s risk-adjusted rate of return on this transaction. Now assume that K-life could also have made a loan for the same amount to a firm in the service industry, and that the standard deviation for economic capital purposes in this case is 1.29%. Compute the bank’s…
The activity ratios measure which of the following? Select one: O a the efficiency of the company's supply chain O b. the efficiency with which a company generates sales from its assets Oc the profitability of the company's activities Od the production efficiency of a company's fixed assets If the assumption of financial distress costs is added, then Modigliani and Miller (with taxes) predicts that the optimal capital structure is 100% debt Select one: O True O False
This is how to get a fair P/E ratio of a company using NOPAT growth, ROIIC (ROIC), and Cost of capital NOPAT growth: 10%ROIIC: 20% → Fair P/E: 32.3Cost of capital: 6.7% read the picture and it shows the instruscture, however, it does not say the specific stpes of how they get the fair P/E mulitple of 32.3. it summarlized without showing steps. So please show the step of how to get this result which is 32.3 Price to earnings ratio. U may use DCF for this! thank you!
You have the following information on a company on which to base your calculations and discussion: Cost of equity capital (rE) = 18.55% Cost of debt (rD) = 7.85% Expected market premium (rM –rF) = 8.35% Risk-free rate (rF) = 5.95% Inflation = 0% Corporate tax rate (TC) = 35% Current long-term and target debt-equity ratio (D:E) = 2:5 a. What are the equity beta (bE) and debt beta (bD) of the firm described above?[Hint: Assume that the above costs of capital have been generated by an appropriate equilibrium model.] b. What is the weighted-average cost of capital (WACC) for this firm at the current debt-equity ratio? c. What would the company’s cost of equity capital become if you unlevered the capital structure (i.e. reduced gearing until there is no debt)
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Calculation of individual costs and WACC BlackRock, Inc. (BLK) has a capital structure that consists of common stock equity and debt. The market capitalization of its equity is $76.644 billion and its debt has a market value of $6.797 billion. a. Calculate the market value weights for BLK's capital structure. b. Calculate BLK's cost of equity using a beta of 1.26, a risk-free rate of 0.78%, and a market risk premium of 6.70%. c. Calculate BLK's cost of debt using a bond price of $1,067.77, semi-annual coupon payment of $28.75, and 5 years to maturity. d. Calculate BLK's current WACC using a 21% corporate tax rate. a. The market value weight of long-term debt in BLK's capital structure is %. (Round to two decimal places.)
1. Determine the weighted average cost of capital (WACC) for Vigour Pharmaceuticals. use the following Formulae: WACC: (E/ V) x R e + ( D/ V) x R d x (1-Tc) whereas: E is for Equity ( market value of firm's equity) D is for Debt ( market value of firm's dept) V is for Value ( combine market value which is D + E) R e is the cost of equity R d is the cost of debt Tc is the corporate tax rate
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You have the following information about Burgundy Basins, a sink manufacturer. Equity shares outstanding Stock price per share Yield to maturity on debt Book value of interest-bearing debt Coupon interest rate on debt Market value of debt Book value of equity Cost of equity capital Tax rate a. What is the internal rate of return on the investment? Note: Round your answer to 2 decimal places. Internal rate of return I Weighted-average cost Burgundy is contemplating what for the company is an average-risk investment costing $38 million and promising an annual ATCF of $4.9 million in perpetuity. % b. What is Burgundy's weighted-average cost of capital? Note: Round your answer to 2 decimal places. 20 million % $39 7.5% $350 million 4.4% $ 245 million $ 410 million 11.8% 35%
3. Company WACC is 20%. Debt interest rate is 4% and D/ E ratio is 1,6. What is the cost of equity? HOW YOU CALCULATE THIS WITH EXCEL AND USING EXCEL FORMULAS?
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