General Lithograph Corporation uses no preferred stock. The firm'scapital structure uses 34% debt (hint: the rest is equity). The marginal taxrate is 28.73% and the before-tax cost of debt is 3.68%. The firm expectsto pay a dividend per share of $0.96 next year, and their dividend isexpected to grow at 5.38% over the long-run. Their stock currently tradesat $16.66 per share. What is General Lithograph's weighted average costof capital (WACC)? Enter your answer without the "%", and with two decimalplaces (in other words, if you calculate 9.87%, then just enter 9.87).8.25 margin of error +/- 0.05

To determine General Lithograph Corporation's Weighted Average Cost of Capital (WACC), we calculated…

Answered: General Lithograph Corporation uses no…

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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AllCity, Inc., is financed 37% with debt, 7% with preferred stock, and 56% with common stock. Its pretax cost of debt is 6.2%, its preferred stock pays an annual dividend of $2.52 and is priced at $33. It has an equity beta of 1.13. Assume the risk-free rate is 2.1%, the market risk premium is 6.6% and AllCity's tax rate is 25%. What is its after-tax WACC? Note: Assume that the firm will always be able to utilize its full interest tax shield. ..... The WACC is %. (Round to two decimal places.)
Pearson Motors has a target capital structure of 35% debt and 65% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 12%, and its tax rate is 25%. Pearson's CFO estimates that the company's WACC is 10.70%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. Hide Feedback Incorrect
National Co., a company with a 25% debt-to-equity ratio, has a weighted average cost of capital of 9%. The firm is growing at a constant rate and does not issue any preferred shares. The after-tax cost of debt is determined at 9%. The expected dividend to be declared by National Co. is P2 and growth rate is 1%. How much is the current price of the ordinary share?
Jace Motors has a target capital structure of 45% debt and 55% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 10%, and its tax rate is 25%. Jace's CFO estimates that the company's WACC is 12.00%. What is Jace's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.
Ivanhoe Resources Company has a WACC of 12.0 percent, and it is subject to a 40 percent marginal tax rate. Ivanhoe has $370 million of debt outstanding at an interest rate of 11 percent and $900 million of equity (at market value) outstanding. What is the expected return on the equity with this capital structure? (Round answer to 2 decimal places, e.g. 17.54%.) Expected return on equity
Company Zero is a non-listed private company with total equity of P10 million and debt of P4.5 million. The tax rate is 30%, risk-free rate is 6%. Company One is a publicly listed company which is in the same industry, product line and risk profile as Company Zero. It has a beta of 1.5, equity of P15 million and total debt of P6 million. Tax rate is 35%. The expected return of on a market portfolio is 12% and the risk-free return is 8%. a. Compute the beta for Company Zero. b. Compute the risk premium and the required return for Company One market portfolio.
The company Nexti AS has 2 million shares outstanding with a market price of NOK 30 per share and with an equiry beta equal to 1.5. The book value of equity is NOK 40 million. The company also has NOK 70 million in long-term debt, the debt beta is equal to zero. Risk-free interest rate is 3% and the market risk premium is 7%. The company pays 30% income tax. (There is nobody investor tax, Se=Sk=0) a) What would the value of the company be worth if it were 100% equity financed? b) What would the company's cost of equity be if the company is financed with 100% equity?
Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock. Its before-tax cost of debt is 11%, and its marginal tax rate is 25%. The current stock price is Po= $34.00. The last dividend was Do = $2.25, and it is expected to grow at a 4% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal places. Ts= WACC= % % 4
Kennedy Limited is an all-equity publicly listed firm with 600,000 shares currently on issue trading at $20 per share and is expected to generate $1,800,000 in EBIT p.a. in perpetuity. They are considering immediately repurchasing one third their equity at the current market price and replacing this with debt with an interest cost of 4% per annum. Assume that Kennedy Limited operate in a perfect capital market with no taxes, information costs, transaction costs etc. a) Demonstrate the impact of the change in capital structure on the (i) Net Income, (ii) ROE and (iii) ROA for Kennedy Limited. b) For what value of EBIT will ROE be unaffected by Kennedy Ltd’s decision to repurchase shares?
Mitsu Corporation has 100,000 shares of common stock outstanding. The stock currently sells for $50 per share and has a beta of 1.8. The firm has $4 million debt outstanding. The cost of debt before tax is 6.5%. The market risk premium is 7%. T- bills are yielding 4%. Tax rate is 35%. What is the weighted average cost of capital (WACC) of the firm? A) 9.07% O B) 11.10% C) 9.93% D) 11.50% E) 10.36%

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