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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Please answer the following urgently : Bruce & Co. expects its EBIT to be $100,000 every year forever. The firm can borrow at 11 percent. Bruce currently has no debt, and its cost of equity is 18 percent. The tax rate is 31 percent. Given the above information; a) Complete the table given below for varying levels of debt below by using a mix of the given information and using your own computations. EBIT $100,000.00 Cost of debts 11% cost of equity when unlevered 18% Tax rate 31% Debts $0 $10,000.00 $20,000.00 $30,000.00 Cost of Equity when levered Equity D/E Vu VL WACC b) Plot the results from the table into the following two graphs:i) Value of the firm vis-à-vis- Total debtii) Cost of capital of the firm vis-à-vis D/E ratio.iii) Which MM propositions have you demonstrated?
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