Dynamic World Vista Industries (DWVI) wishes to estimate its cost of capital for use in analyzing projects that are similar to those that already exist. The firm's current capital structure, in terms of market value, includes 30 percent corporate bond, 10 percent

Dynamic World Vista Industries (DWVI) wishes to estimate its cost of capital for use in analyzing projects that are similar to those that already exist. The firm's current capital structure, in terms of market value, includes 30 percent corporate bond, 10 percent

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 9P

See similar textbooks

Related questions

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: A firm has determined its optimal capital structure, which is composed of the following sources and…

A: Here, Interest Rate in debt is 10% Par Value of Preferred Stock is $100 Market Value of Preferred…

Q: Dynamic World Vista Industries (DWVI) wishes to estimate its cost of capital for…

A: WACC is the avg. cost of all sources of finance by considering their values or weights. It is the…

Q: LOFTA Corporation is interested in measuring the cost of each specific type of capital as well as…

A: Hey, since there are multiple subpart questions posted, we will answer the first three questions. If…

Q: LOFTA Corporation is interested in measuring the cost of each specific type of capital as well as…

A: Answer of first 3 parts a. After tax cost of debtKd=I(1-Tax rate)+RV-SVnRV+SV2 where Kd=After tax…

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: OFTA Corporation is interested in measuring the cost of each specific type of capital as well as the…

Q: Nalcoa Corp. is financing a project that is in the same industry as its current portfolio of…

A: In this question, we are required to determine the weighted average cost of capital.

Q: a. Calculate the present value of interest tax shield, you may assume that you can discount any…

A: Interest tax shield is the tax benefit which is derived by adding debt in the capital structure of…

Q: LOFTA Corporation is interested in measuring the cost of each specific type of capital as well as…

A: As per the guidelines, in the case of multi-subparts first three sub-parts can be solved by us. For…

Q: Montclair Company is considering a project that will require a $520,000 loan. It presently has total…

A: Assets have debit balance while liabilities and equity have credit balance. As per dual concept of…

Q: Dynamic World Vista Industries (DWVI) wishes to estimate its cost of capital for use in analyzing…

A: Firm arrange funds for new projects or investments from external sources, for that firm has to pay…

Q: Consider a firm that is currently all-equity financed. The firm produces a perpetual EBIT of $90m…

A: EBIT = $90 million Corporate tax rate = 30% Initial level of debt = $400 million Required return on…

Q: A firm has determined its optimal capital structure, which is composed of the following sources and…

A: Given: Years = 3 Cost of machine = $6,000,000 Cash savings = $2,600,000

Q: A firm has determined its optimal capital structure, which is composed of the following sources and…

A: Capital structure of the company is the proportion of different types of financing being used. The…

Q: Montclair Company is considering a project that will require a $500,000 loan. It presently has total…

A: Ratio analysis is the study of several financial data points found in the financial statements of an…

Q: A firm needs to raise $650 million for a project; external equity financing will be required. The…

A: given, average flotation cost = we×Fe+wd×Fd where, we=weight of equitywd=weight of debtFe=flotation…

Q: To assist with evaluating potential capital projects, Insignia Corporation Limited is seeking to…

A: The weighted average cost of capital is the cost of capital in each category of item is…

Q: Calculate the Weighted Average Cost of Capital for Carrium Insights Inc.

A: Information Provided: Debt face value = $568,000 Debt price = $539,600 Debt Term = 20 years Debt…

Q: GBATT has a capital need of $100 million to fund its operations. GBATT has an equity investor that…

A: Cost of capital refers to the amount of capital fund maintained as a portfolio of equity and debt.…

Q: ierra Vista Industries (SVI) wishes to estimate its cost of capital for the use in the analyzing…

A: 1. a) Cost of debt : =Cost of debt (kd) is 8.30% b) Cost of preference shares (kp): =DividendPrice…

Q: Western Wear is considering a project that requires an initial investment of $602,000. The firm…

A: Given information : Initial investment = $602,000 Debt equity ratio = 0.55 Flotation cost of debt =…

Question

100%

The firm's corporate bond has an average yield to maturity of 8.3 percent. DWVI also has an irredeemable loan notes currently trading at GHc 40 ex interest an interest rate of five (5) percent. Its preference shares have a Gllc 70 par value, an 8 percent dividend, and are currently selling for GHc 76 per share. DWVI's beta is 1.05, return on riskless asset is 4 percent and the return on the GSE (the market proxy) is 11.4 percent. The industry is in the 40 percent marginal tax bracket.

Required:

a) What are DWVI's pre-tax costs of debts, preference shares and ordinary shares?

Video Video

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Calculate Ndovu plc’s weighted average cost of capital, based on the CAPM computed cost of equity. Discuss the appropriateness of using the weighted average cost of capital calculated above as Ndovu plc’s discount rate.
CrochetCo is considering an investment in a project which would require an initial outlay of $301,072 and produce expected cash flows in years 1 through 4 of $85,410 per year. You have determined that the current after-tax cost of the firm's capital (required rate of return) for each source of financing is as follows: Source of Capital Cost Long-Term Debt 4% Preferred Stock 8% Common Stock 13% Weight 45% 11% remaining What is the net present value of this project?
Montclair Company is considering a project that will require a $500,000 loan. It presently has total liabilities of $220,000 and total assets of $620,000. 1. Compute Montclair’s (a) current debt-to-equity ratio and (b) the debt-to-equity ratio assuming it borrows $500,000 to fund the project. 2. If Montclair borrows the funds, does its financing structure become more or less risky?
A firm needs to raise $650 million for a project; external equity financing will be required. The firm faces flotation costs of 8.0% for equity and 2.0% for debt. If the debt to equity ratio is 0.75, the average flotation cost incurred by the firm will be ________ %
Montclair Company is considering a project that will require a $520,000 loan. It presently has total liabilities of $210,000 and total assets of $630,000. 1. Compute Montclair's (a) current debt-to-equity ratio and (b) the debt-to-equity ratio assuming it borrows $520,000 to fund the project. 2. If Montclair borrows the funds, does its financing structure become more or less risky? 1. (a) 1. (b) 2. 1 Choose Denominator: 1 1 1 If Montclair borrows the funds, does its financing structure become more or less risky? Choose Numerator: Debt-to-Equity Ratio
Corporation XYZ wants to invest in a project for which the need is 44.4 million. 7.8 million will come from a bank loan at 7.99 percent per year. 7.3 million will come from issuing bonds with a bond rate of 5.46. The rest will be financed with a stock issue that will pay dividends of 5.44 dollars per share. The average stock price is 107.09. Compute the cost of capital for this project in percentage points if the tax rate is 35%
provide answer please
Shaylee Corporation has $2.00 million to invest in new projects. The company's managers have presented a number of possible options that the board must prioritize. Information about the projects follows: Initial investment Present value of future cash flows Required: 1. Is Shaylee able to invest in all of these projects simultaneously? 2-a. Calculate the profitability index for each project. 2-b. What is Shaylee's order of preference based on the profitability index? Complete this question by entering your answers in the tabs below. Req 1 Project A $ 435,000 785,000 Req 2A and 2B Is Shaylee able to invest in all of these projects simultaneously? Is Shaylee able to invest in all of these projects simultaneously? Project C $ 740,000 1,220,000 Project D $ 965,000 1,580,000
Mantap Industries has three projects under consideration. Project L is a lower-than-averagerisk project, project A is an average-risk project, and project H is a higher-than-average-riskproject. You have gathered the following information to determine if one or more of theseprojects has an acceptable rate of return for the firm.• Sources of financing 50% debt and 50% equity• Rd = 8.00% before taxes• Tax Rate = 30%• Average beta for Mantap Industries = 1.0• Rm = 13.00%• Rf = 4.00%• Adjusted WACC = 9.30%• Beta for project L = 0.80, for project A = 1.00, and for project H = 1.20• IRRL = 9.00%, IRRA = 10.00%, and IRRH = 11.00%Calculate the required rate of return for each project and determine which, if any, projects are acceptable to the firm
GoldPure is considering the following independent, average-risk investment projects: Project Size of Project Project IRR Project V P1.0 million 12.0% Project W 1.2 million 11.5 Project X 1.2 million 11.0 Project Y 1.2 million 10.5 Project Z 1.0 million 10.0 The company has a target capital structure that consists of 50 percent debt and 50 percent equity. Its after-tax cost of debt is 8 percent, its cost of equity is estimated to be 16.5 percent, and its net income is P2.5 million. If the company follows a residual dividend policy, what will be its plowback ratio? Answers: a. 32% b. 100% c. 12% d. 54% e. 68% f. 66% g. 0
The Tenedero, Belleres and Ojilla aka TBO Company is planning to invest in a piece of drying equipment for their dried mango product line and needs to evaluate this using the discounted cash-flow techniques in capital budgeting, thus, they need to identify their weighted average cost of capital. The company plans to use P10Million of long-term debts, P5million of preferred stock and P15 million of common equity. Their long-term debt used to have a 15% interest rate but currently, the market requires as much as 17%. Their preferred stock is selling at P40 with P5 dividends. Their common equity is selling at P80 with 8% growth rate in dividends. Furthermore, they are planning to issue P6 dividend per stock at the end of the year. Both preferred stocks and common stocks have a flotation cost of 10%. Their income tax rate is 30% Compute for the company's WACC? (Do not round off immediate calculation and express the final answer in percentage form, example 15.65%)
The WACC is used as the discount rate to evaluate various capital budgeting projects. However, it is important to realize that the WACC is an appropriate discount rate only for a project of average risk. Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address. Consider the case of Turnbull Co. Turnbull Co. has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 14.7%. However, if it is necessary to raise new common equity, it will carry a cost of 16.8%. If its current tax rate is 25%, how much higher will Turnbull’s weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the…