Delta Corporation has the following capital structure: Cost Weighted (aftertax) Weights Cost Debt (Ka) Preferred stock (Kp) Common equity (Ke) (retained earnings) 5.6% 25% 1.40% 10.2 25 2.55 13.2 50 6.60 Weighted average cost of capital (Ka) 10.55% a. If the firm has $31 million in retained earnings, at what size capital structure will the firm run out of retained earnings? (Enter your answer in millions of dollars (e.g., $10 million should be entered as "10").) Capital structure size (X) million
Q: a. The after-tax cost of debt using the approximation formula is______%.(Round to two…
A: Here, To Find: Part A. The after-tax cost of debt using the approximation formula =? Part B. WACC…
Q: Suppose Alcatel-Lucent has an equity cost of capital of 10.4%, market capitalization of $11.52…
A: WACC = (Cost of equity x Weight of equity) + (Cost of debt x (1-tax rate) x Weight of debt)Weight of…
Q: What is the weighted-average cost of capital for SKYE Corporation given the following information?…
A: WACC can be used for abbreviating the weighted capital cost on an average which can be computed by…
Q: Evans Technology has the following capital structure. Debt Common equity 30% 70 The aftertax cost of…
A: WACC is the weighted average cost of capital. A company raises its capital from different sources.…
Q: A company's capital structure consists of 25% debt and 75% common equity. The company has a 20% tax…
A: Certainly! Let's break down the calculation of WACC in a step-by-step mathematical way for both…
Q: What is the weighted-average cost of capital for SKYE Corporation given the following information? 1…
A: The weighted-average cost of capital (WACC) for SKYE Corporation is calculated as approximately 8.6%…
Q: 1. Ridge Tool has on its books the amounts and specific (after-tax) costs shown in the table for…
A: The WACC is the rate of return on long-term projects that the business must obtain in order to…
Q: O 0.30
A: Amount in million % of Weight Debt 1.4 28% Preferred Stock 1.5 30% Common Equity 2.1 42%…
Q: Given the following, determine the firm’s optimal capital structure: Debt/Assets After-Tax Cost…
A: Part 2: Explanation:Step 1: Calculate the weighted average cost of capital (WACC) using the given…
Q: The calculation of WACC involves calculating the weighted average of the required rates of return on…
A: Total capital structure = debt + preferred stock + common equity = $2.7m + $1.5m + $2.2 m = $ 6.4m
Q: Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as…
A: (Note: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the…
Q: Consider the case of Turnbull Co. Turnbull Co. has a target capital structure of 58% debt, 6%…
A:
Q: A fitness equipment manufacturer is capitalized with long-term debt, preferred stock and common…
A: WACC (weighted average cost of capital) refers to the average cost that is paid by a company to…
Q: What is the weighted-average cost of capital for SKYE Corporation given the following information?…
A: Cost of Equity using the Capital Asset Pricing Model (CAPM):The CAPM formula is:Cost of…
Q: preferred stock, and common equity, where the weights equal the percentage of each type of financing…
A: WACC is weighted Average cost of Capital. It includes the all cost which is used for financing the…
Q: The basic WACC equation The calculation of WACC involves calculating the weighted average of the…
A: Given: Value of debt = $1.4 million Value of preferred stock = $3 million Value of equity = $1.2…
Q: Delta Corporation has the following capital structure: Debt (K) Preferred stock (Kp) Common equity…
A: Capital Structure: It refers to how a firm finances its overall business operations and growth.…
Q: 6. The basic WACC equation The calculation of a weighted average cost of capital (WACC) involves…
A: The symbol that represents the cost of preferred stock in the weighted average cost of capital is rp
Q: You have been assigned to calculate the weighted average cost of capital (WACC) of XYZ Corporation.…
A: Wacc is weighted average cost of capital including weight of both costs of equity and cost of debt.
Q: You have collected the following information about a company: Source of capital Market value Book…
A: Weighted average cost of capital is the weighted average of individual cost of source of capital
Q: Tarrah, Inc. has a target capital structure of 40% debt and 60% common equity. If the firm's…
A: A company's average after-tax cost of capital from all sources, including common stock, preferred…
Q: Profitquest Inc. has $142,500 in retained earnings and has a capital structure of 25% debt and 75%…
A: Breakpoint for Internal equity can be calculated as = Retained earning / Weight of Equity
Q: Assume the following information about a firm's capital components: What is the firm's WACC? capital…
A: WEIGHT = Amount / Total amount.Product = Weight * Cost.WACC = Total of Product.
Q: The calculation of WACC involves calculating the weighted average of the required rates of return on…
A: Optimal capital structure: Optimal capital structure is the combination of debt and equity, at which…
Q: The calculation of WACC involves calculating the weighted average of the required rates of return on…
A: Debt = $2.7 millionPreferred stock = $2.5 millionCommon equity = $2.1 million
Q: if A firm's current balance sheet is as follows: Assets $100…
A:
Q: The WACC K. Bell Jewelers wishes to explore the effect on its cost of capital of the rate at which…
A: Weight of Debt = wd = 25%Weight of Preferred Stock = wp = 10%Weight of Equity = we = 65%Cost of…
Q: The L Corp. has determined that its optimal capital structure consists of 40 percent debt and 60…
A: rd before Tax = 8% Tax = 40% rd after tax = 0.08*(1-0.40) = 0.08*0.60…
Q: Turnbull Co. has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity.…
A: The capital structure has 45 % of debt 4% of preferred stock and 51% of equity tax rate is 25%.
Q: Given the following information, calculate the weighted average cost of capital for Digital…
A: Note: It has been assumed that the second dividend preferred is given by mistake and it is actually…
Q: The after-tax cost of debt using the bond's yield to maturity (YTM) is _____(Round to two…
A: The after tax cost of debt using the RATE function in excel: RATE = (NPER, PMT, PV, FV) where NPER =…
Q: (Individual or component costs of capital) Compute the cost of capital for the firm for the…
A: Part-A Yield 8.77% Tax rate 34% Part-B Dividend Last year $ 1.09 Growth rate 5.80%…
Q: Consider the case of Turnbull Co. Turnbull Co. has a target capital structure of 58% debt, 6%…
A: Please note that under answering guidelines only the first question can be solved. Since multiple…
Q: Suppose Alcatel-Lucent has an equity cost of capital of 9.2%, market capitalization of $10.95…
A:
Q: Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling…
A: Cost of capital is money to be paid by the company for using money through sources of capital.
Q: a. What is the firm's weighted average cost of capital? Note: Do not round intermediate…
A: The weighted average cost of capital measures the typical cost a business pays to finance its…
Q: Assume that your company is trying to determine its optimal capital structure, which consists only…
A: Here, Particulars Values Cost of capital 11.00% Risk-free rate 5.00% Market risk premium…
Q: what is the symbol that represents the cost of raising capital through retained earnings in the…
A:
Q: The calculation of WACC involves calculating the weighted average of the required rates of return on…
A: WACC stands for "Weighted Average Cost of Capital." WACC is a financial metric that represents the…
Q: Company stated that its optimal capital structure consists of debt taking up 30% of its total…
A: The question is related to Cost of Capital. The Calculation of Weighted Average Cost of Capital…
Q: A firm's capital is composed of the following sources and proportions: Source of Capital Weights…
A: WACC= Wd Kd + Wp Kp + Wc KcWd = Weight of Debt Kd = Cost of debtWp=Weight of Preferred…
Q: is composed of the following sources and current market value proportions: Source of Capital…
A: Weighted average cost of capital is the weighted cost of equity , weighted cost of debt and weighted…
Q: A firm's optimal capital structure is 70% equity. If the firm has $35 million in retained earnings…
A: Retained earnings available for investment = $35 millionOptimal capital structure = 70% equity
Q: at is the weighted average cost of capital (WACC) for ABC Limited which has the following capital…
A: Weighted average cost of capital is weighted cost of equity and weighted cost of debt that is hurdle…
Q: Suppose your firm has a market value of equity is $500 million and a market value of debt is $475…
A: Given: Market value of equity = $500 Million Market value of debt = $475 Million
Q: What is the weighted-average cost of capital for SKYE Corporation given the following information? 1…
A: Cost of equity = Rf+Beta *(Rm-Rff).Rf= Risk free rate= 7%Rm-Rf= Market risk premium = 7%Cost of…
Q: A firm has a capital structure with $75 million in equity and $75 million in debt. The cost of…
A: The objective of the question is to calculate the weighted average cost of capital (WACC) of a firm.…
Q: 1. The basic WACC equation The calculation of WACC involves calculating the weighted average of the…
A: WACC :— It is calculated by adding the product of cost of capital and it's weight. WACC = (cost…
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
- (Individual or component costs of capital) Compute the cost of capital for the firm for the following: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.4 percent. Interest payments are $52.00 and are paid semiannually. The bonds have The firm's marginal tax rate is 34 percet. b. A new common stock issue that paid a $1.76 dividend last year. The firm's dividends are expected to continue to grow at 7.8 percent per year, forever. The price of the firm's common stock is now $27.86. c. A preferred stock that sells for $125, pays a dividend of 9.1 percent, and has a $100 par value. d. A bond selling to yield 11.4 percent where the firm's tax rate is 34 percent. current market value of $1,125 and will mature in 10 years. a. The after-tax cost of debt is %. (Round to two decimal places.)1. A firm has the following capital structure: Assets thousands € Liabilities and equity thousands € Assets 12,000 Debt 3,000 Common stock 9,000 Total 12,000 Total 12,000 a) What is the firm's weighted average cost of capital at various combinations of debt ans equity, given the following information? Tax rate is 30%. Debt/Assets Debt interest rate Cost of equity 0% 6% 10% 10% 6% 10% 20% 6% 10% 30% 6% 10% 40% 8% 12% 50% 10% 13% 60% 13% 15% b) Construct a balance sheet that indicates the firm's optimal capital structure. Compare this balance sheet with the firm's current balance sheet. What course of action should the firm take? c) As the firm substitutes debt for equity financing, what happens to the cost of capital, and why?Delta Corporation has the following capital structure: Cost (aftertax)WeightsWeighted CostDebt (Kd)5.5%25%1.38%Preferred stock (Kp)10.5252.63Common equity (Ke) (retained earnings)10.5505.25Weighted average cost of capital (Ka) 9.25% If the firm has $26 million in retained earnings, at what size capital structure will the firm run out of retained earnings? Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10". Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10".The 5.5 percent cost of debt referred to earlier applies only to the first $18 million of debt. After that the cost of debt will go up. At what size capital structure will there be a change in the cost of debt?
- The basic WACC equation The calculation of a weighted average cost of capital (WACC) involves calculating the weighted average of the required rates of return on debt and equity, where the weights equal the percentage of each type of financing in the firm’s overall capital structure. what is the symbol that represents the cost of preferred stock in the weighted average cost of capital (WACC) equation.__________ Bob Co. has $1.26 million of debt, $3.16 million of preferred stock, and $2.02 million of common equity. The appropriate weight of the firm's preferred stock in the calculation of the company's weighted average cost of capital is____________% .Assume that a firm has a cost of debt capital of 0.06, a company tax rate of 0.2, a market value of debt of $10 million, a cost of equity capital of 0.14, and a market value of equity of $10 million. Also assume that the proportion of company taxes claimed by shareholders is 0.5. Which of the following values is the closest to this firm's weighted average cost of capital?Hello. I need help with the following question please. Taylor Company has a target capital structure that consists of $3.3 million of debt capital, $2.5 million of preferred stock financing, and $2.8 million of common equity. The corresponding weights of its debt, preferred stock, and common equity financing that should be used to compute its weighted cost of capital (rounded to the nearest wo decimal places) are: 38.37%, 29.07%, and 32.56%, respectively 32.04%, 34.53%, and 33.43%, respectively 29.07%, 32.56%, and 38.37%, respectively 34.53%, 33.43%, and 32.04%, respectively Consider the following case: Mason Limited, a key competitor of Taylor Company in the construction field, has a capital structure consisting of 45% debt, 5% preferred stock, and 50% common equity. Concerned that its cost of capital may put it at a competitive disadvantage vis-a-vis the Taylor Company, a Mason analyst has been tasked with computing and comparing the weighted costs…
- Evans Technology has the following capital structure. Debt Common equity 35% 65 The aftertax cost of debt is 7.50 percent, and the cost of common equity (in the form of retained earnings) is 14.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Common equity Weighted average cost of capital Weighted Cost % % An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 16.50 percent. Debt Common equity Weighted average cost of capital b. Recalculate the firm's weighted average cost of capital. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal…According to the following information, what is the firm's optimal capital structure? Proportion Earnings Per Weighted Average Cost of Debt Share (EPS) of Capital (WACC) 30% $2.50 13.2% 40 3.80 12.7 50 4.75 12.4 60 5.25 12.8 To determine the optimal capital structure, the market value of the stock must be known.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: 40% long-term debt, 15% preferred stock, and 45% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 26%. Debt The firm can sell for $1005 a 13-year, $1,000-par-value bond paying annual interest at a 6.00% coupon rate. A flotation cost of 2.5% of the par value is required. Preferred stock 7.00% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $80 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.50 ten years ago to the $4.92 dividend payment, D0, that the company just recently made. If…
- A firm has two components in its capital structure, debt and equity. The after-tax cost of debt is 3% and the cost of equity is 11%. The proportion of equity in the capital structure is 75%. What is the firm's Weighted Average Cost of Capital? Select one: a. 9.47% b. 8.78% c. 9.00% d. 8.37%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…The calculation of WACC involves calculating the weighted average of the required rates of return on debt, preferred stock, and common equity, where the weights equal the percentage of each type of financing in the firm’s overall capital structure. Q1. ________is the symbol that represents the cost of preferred stock in the weighted average cost of capital (WACC) equation. Q2. Avery Co. has $3.9 million of debt, $2 million of preferred stock, and $2.2 million of common equity. What would be its weight on debt? a. 0.27 b. 0.25 c. 0.48 d. 0.20 Q1. Option 1 rS or Option 2 rD or Option 3 rP or Option 4 rE Please provide the correct answers. Thank you!