Example. The table reports book values for Corp X, incorporated in the US. The company has paid $300.000 for interest on debt in the FY, its current Market-to-Book Ratio is 1,5. The interest rate on the 10Y US Treasury Bond is 2%. The return on the S&P500 index is 12%, while, after estimating variance and covariance for Corp and S&P, you find that the beta for Corp X is 1,1. The tax rate is 24%. What is Corp X's after-tax WACC? Corporation X (Book Values) $6MIn Debt $4MIn Equity Asset Value $10MIn

Example. The table reports book values for Corp X, incorporated in the US. The company has paid $300.000 for interest on debt in the FY, its current Market-to-Book Ratio is 1,5. The interest rate on the 10Y US Treasury Bond is 2%. The return on the S&P500 index is 12%, while, after estimating variance and covariance for Corp and S&P, you find that the beta for Corp X is 1,1. The tax rate is 24%. What is Corp X's after-tax WACC? Corporation X (Book Values) $6MIn Debt $4MIn Equity Asset Value $10MIn

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Description: Example. The table reports book values for Corp X, incorporated in theUS. The company has paid $300.000 for interest on debt in the FY, itscurrent Market-to-Book Ratio is 1,5. The interest rate on the 10Y USTreasury Bond is 2%. The return on the S&P

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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Concept explainers

Financial Ratios

A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.

Return on Equity

The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.

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Question

Example. The table reports book values for Corp X, incorporated in the
US. The company has paid $300.000 for interest on debt in the FY, its
current Market-to-Book Ratio is 1,5. The interest rate on the 10Y US
Treasury Bond is 2%. The return on the S&P500 index is 12%, while,
after estimating variance and covariance for Corp X and S&P, you find
that the beta for Corp X is 1,1. The tax rate is 24%. What is Corp X's
after-tax WACC?
Corporation X (Book Values)
$6MIn Debt
$4MIn Equity
Asset Value $10Mln

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Step 1: Define weighted average cost of capital.

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