Galaxy Enterprises in 2024 has long-term debt of $50 million at an average interest rate of 8%.Its market capitalization is $60 million. The tax rate is 42%, and the cost of equity is 12%. Thecompany also has a new car worth $30,000 and a painting worth $700,000. Determine theWACC. Calculate the after-tax cost of debt for the Crestview Clinic, given:•The coupon rate on its debt is 8 percent.• The tax rate is 35 percent.•Crestview Clinic also has annual software expenses of $2,000 and recently completed abuilding renovation costing $100,000.

Approach to solving the question: Step 1: Calculate the After-tax Cost of Debt for Galaxy…

Answered: Galaxy Enterprises in 2024 has…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 14P

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In 2024, Stellar Technologies has long-term debt of $40 million at an interest rate of 10%. The company has a market capitalization of $90 million. The tax rate is 35%, and the cost of equity is 15%. The company also has a vintage collection worth $2 million and a rare book collection valued at $300,000. Calculate the weighted average cost of capital. Calculate the after-tax cost of debt for the Horizon Health Center, given the following: The coupon rate on its debt is 10 percent. ⚫ The tax rate is 30 percent. • Horizon Health Center has recently purchased office furniture worth $10,000 and its annual subscription to a medical journal is $500.
Hello. I need help with the following question please. Calculate the after-tax cost of a $35 million debt issue that Pullman Manufacturing Corporation (35% marginal tax rate) is planning to place privately with a large insurance company. This long-term issue will yield 6/8 percent to the insurance company. Round your answer to two decimal places.
Eagle Sports Products (ESP) is considering issuing debt to raise funds to financeits growth during the next few years. The amount of the issue will be between$35 million and $40 million. ESP has already arranged for a local investmentbanker to handle the debt issue. The arrangement calls for ESP to pay flotationcosts equal to 4 percent of the total market value of the issue.a. Compute the flotation costs that ESP will have to pay if the market valueof the debt issue is $39 million.b. If the debt issue has a market value of $39 million, how much will ESP beable to use for its financing needs? That is, what will be the net proceedsfrom the issue for ESP? Assume that the only costs associated with the issueare those paid to the investment banker.c. If the company needs $39 million to finance its future growth, how muchdebt must ESP issue?
ABC Industries is considering a 3-year project that will cost $200 today followed by free cash flows to firm of $100 in year 1, $80 in year 2, and $160 in year 3. ABC has $1000 of assets with a debt ratio of 40.00%. ABC's before-tax cost of debt is 7.00% and its cost of equity is 12.00%. Suppose ABC pays a fee of$6 to the investment bankers who help them to raise the $120 Debt capital. Assuming the tax rate is 35.00% and that the flotation cost can be amortized (i.e. deducted) for tax purposes over the 3 year life of the project. The NPV of the project using the APV method, taking into account the flotation costs, is closest to: $8.40 $11.34 $10.66 $7.72
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You want to purchase an office building in Brooklyn that is expected to generate $475554 net operating income (NOI) in the following year. You decide you want to take out a loan to finance the purchase of this property. It will be an IO loan at a rate of 6.82%, compounded annually, with annual payments. The lender will provide financing up to a minimum Debt Service Coverage Ratio (DSCR) of 1.2 based off the next year's NOI. What is the largest loan amount the lender will allow you to take based on the DSCR requirement? State your answer as a number rounded to the nearest cent (e.g. if you get $13.57654, write 13.58)
An investor owns a property that produces an NOI of $110,000 and has an annual debt service of $70,000 and the forecast of cost recovery and interest deductions are $38,427 and $58,593 respectively. The investor’s marginal tax rate is 35 percent. The investor’s projected cash flow after taxes is: A. $30,000 B. $35,457 C. $43,256 D. $25,821
(Ignore income taxes in this problem.) Your Company is considering an investment proposal in which a working capital investment of $45,000 would be required. The investment would provide cash inflows of $5,000 per year for seven years. The company's discount rate is 8%. What is the investment's net present value? a- $4,115 b- $3,530 c- $7,265 d- $5,645
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Your firm needs to borrow $1.0 million for one year. The firm has no other short term borrowings and it's combined state and federal tax rate is 25%. Your banker offers several lending alternatives. Which one will you choose? Select one: a. 5.00% discount interest b. 5.50% simple interest C. 5.05% simple interest with a 20.00% compensating balance d. 5.00% simple interest with a 18.00 % compensating balance
igital Organics (DO) has the opportunity to invest $1.03 million now (t = 0) and expects after 2. The project will last for two years = - tax returns of $630,000 in t = 1 and $730,000 in t only. The appropriate cost of capital is 11% with all - equity financing, the borrowing rate is 7%, and DO will borrow $330,000 against the project. This debt must be repaid in two equal installments of $165,000 each. Assume debt tax shields have a net value of $0.20 per dollar of interest paid. Calculate the project's APV.
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