EPS, Debt-to-Equity, Breakeven point LexMart maintains a debt-to-equity ratio of 1.0 regardless of whether the firm experiences expansion or contraction. At the present time, LexMart has $1,000 par value bonds outstanding that pay 9% annual interest. The firm also has 2.4 million shares of common stock outstanding that sells for $21 per share. a. Based on LexMart's current annual NOP of $23,500,000 and its corporate tax rate of 20%, what is its EPS? b. If LexMart would like to finance a $61 million expansion while maintaining its current debt-to-equity ratio of 1.0, how many bonds at $1,000 per bond and shares of stock will it have to sell to pay for the expansion? c. After the expansion, what level of annual NOP will LexMart have to generate to maintain its curent level of EPS? COD a LexMart's current EPS is $(Round to three decimal places)

EPS, Debt-to-Equity, Breakeven point LexMart maintains a debt-to-equity ratio of 1.0 regardless of whether the firm experiences expansion or contraction. At the present time, LexMart has $1,000 par value bonds outstanding that pay 9% annual interest. The firm also has 2.4 million shares of common stock outstanding that sells for $21 per share. a. Based on LexMart's current annual NOP of $23,500,000 and its corporate tax rate of 20%, what is its EPS? b. If LexMart would like to finance a $61 million expansion while maintaining its current debt-to-equity ratio of 1.0, how many bonds at $1,000 per bond and shares of stock will it have to sell to pay for the expansion? c. After the expansion, what level of annual NOP will LexMart have to generate to maintain its curent level of EPS? COD a LexMart's current EPS is $(Round to three decimal places)

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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Sapp Trucking's balance sheet shows a total of noncallable $35 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $45 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $55 million. The current stock price is $29.00 per share; stockholders' required return, rs, is 14.00%; and the firm's tax rate is 25%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between these two WACCs? a. 1.78% b. 2.04% c. 2.42% d. 1.15% e. 1.53%
Sapp Trucking's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $50 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million. The current stock price is $24.50 per share; stockholders' required return, rs, is 14.00%; and the firm's tax rate is 25%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between these two WACCs? a. 1.92% b. 2.28% c. 1.08% d. 1.68% e. 1.44%
Chella Vibes Industries capital structure consists solely of debt and common equity. It can issue debt at 11%, and its common stock paid a dividend of $1.50. The stock’s price is currently $22.30, its dividend is expected to grow at a constant rate of 5% per year, its tax rate is 40%, and its WACC is 10.56%. What percentage of the company’s capital structure consists of debt and common equity (ie: what are the weights of debt and common equity)?
Badger Corp. has an issue of 6% bonds outstanding with 6 months left to maturity. The bonds are currently priced at $993.02, and pay interest semiannually. The firm's marginal tax rate is 40%. The estimated risk premium between the company's stock and bond returns is 5%. The firm's expects to maintain a capital structure with 40% debt and 60% equity going forward. The company's W.A.C.C. is ____%.
ABC Trucking's balance sheet shows a total of noncallable $30 million long-term debt with a coupon rate of 6.80% and a yield to maturity of 8.10%. This debt currently has a market value of $48 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity is $213.00 million. The current stock price is $23.80 per share; stockholders' required return, rs, is 15.05%; and the firm's tax rate is 36.00%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between the WACCs using market value and the book value?Work with at least 4 decimals and round your final answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. Group of answer choices –0.46% –0.49% –0.44% –0.34% –0.36%
Badger Corp. has an issue of 6% bonds outstanding with 6 months left to maturity. The bonds are currently priced at $1,008.11, and pay interest semiannually. The firm's marginal tax rate is 40%. The estimated risk premium between the company's stock and bond returns is 5%. The firm's expects to maintain a capital structure with 40% debt and 60% equity going forward. The company's W.A.C.C. is %. Margin of error for correct responses: +/-.10(%) Rounding and Formatting instructions: Do not enter dollar signs, percent signs, commas, X, or any words in your response. Do not round any intermediate work, but round your "final response to 2 decimal places (example: if your answer is 12.3456, 12.3456%, or $12.3456, you should enter 12.35).
sapp truckings balance sheet shows a total of non callable $45 million long term debt with a coupon rate of 7% and a yield to maturity of 6%. this debt currently has a market value of $50 million. the balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity is $65 million. the current market value of equity is $20 per share. additionally, stockholders required return is 12.8% and the firms tax rate is 40%. what is the companys WACC based on market value weighting? should be between 9.72 and 12.50. round to 2 decimal places
Sapp Trucking's balance sheet shows a total of noncallable $50 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $65 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $95 million. The current stock price is $26.50 per share; stockholders' required return, rs. is 14.00%; and the firm's tax rate is 25%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between hese two WACCs? Ⓒa. 0,67% Ob. 1.40% Oc1.18% Od. 1.04% e: 0.89%
MV Corporation has debt with market value of $97 million, common equity with a book value of $105 million, and preferred stock worth $23 million outstanding. Its common equity trades at $46 per share, and the firm has 6.1 million shares outstanding. What weights should MV Corporation use in its WACC? The debt weight for the WACC calculation is %. (Round to two decimal places.)
Sapp Trucking's balance sheet shows a total of noncallable $30 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $45 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $60 million. The current stock price is $25.50 per share; stockholders' required return, rs, is 14.00%; and the firm's tax rate is 25%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between these two WACCS? Ⓒa. 1.28% b. 1.47% c. 0.83% d. 1.74% e. 1.10 %
7. ABC Corp has 1.4 million shares common valued at $20 per share =$28 million. Debt has face value of $5 million and trades at 93% of face ($4.65 million) in the market. Total market value of both equity + debt thus =$32.65 million. Equity % = .8576 and Debt % = .1424 Risk free rate is 4%, risk premium-7% and ABC's ß=.74 Current yield on market debt is 11%; Tax rate is 40% . Find out the Returm on equity, Return on debt and WACC.
The Gallagher Co. has a target capital structure of 65% debt and the remainder common equity. Gallagher's cost of debt is 8.5%, its tax rate is 35%, its most recent dividend was $2.00 and that dividend has been growing at 3.5% annually and is expected to continue that growth. The current price of Gallagher stock is $52.50 per share. Flotation costs on new equity are 8.5% and Gallagher has retained earnings of $3.5 million. What is the WACC if Gallagher's total capital expenditure is expected to be $8.5 million?

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