Hawaiian Macadamia Nuts currently has no debt. They are considering changing to a capital structure of 0.8 debt on which they would pay 6% interest. If their current cost of equity is 12%, what will their new cost of equity be assuming a tax rate of 40%. Enter your answer in decimal notation (14,26% would be 14.26).

Hawaiian Macadamia Nuts currently has no debt. They are considering changing to a capital structure of 0.8 debt on which they would pay 6% interest. If their current cost of equity is 12%, what will their new cost of equity be assuming a tax rate of 40%. Enter your answer in decimal notation (14,26% would be 14.26).

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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This is a Debt Coverage Ratio or DCR question for part a and a CAP rate question for part b]. Wendy is going to purchase a commercial building and is working with a commercial lender at her local bank. The bank has some loan parameters that Wendy must follow. Understanding the rules will allow her to calculate her cash, income, and payment projections. The bank requires a 1.4 debt coverage ratio for her project. Wendy needs to calculate her net operating income or NOI first. The debt coverage ratio is based on this number. Then she will apply for a 20 year loan at 5% with annual payments. Information on the property includes: Gross rents- $780,000 Vacancy 5% Salaries $85,000 Other Fixed Expenses $125,000 Variable Expenses 20% of gross rents. NOI=_________________ Use the NOI and Debt Coverage requirement to calculate the answer. What is the largest annual payment the bank will allow? If Wendy had to buy the property at a 6% CAP (capitalization) rate, what is the asking price?
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n this economy, there are 10,000 borrowers. Each person borrows $100 for a 1 year loan. For the lender not to make a loss, the lender must set an interest rate such that they earn at least as much as their outside option of not lending to people from all borrowers that did not default in this economy. In this case, the outside option is the risk-free interest rate on a 1-year US Treasury securtiy. The 1-year USTS pays annual interest rate of i = 0.03. What is the minimum interest rate that the lender will charge to borrow money in this economy
Golden Gate Construction Associates, a real estate developer and building contractor in San Francisco, has two sources of long-term capital: debt and equity. The cost to Golden Gate of issuing debt is the after-tax cost of the interest payments on the debt, taking into account the fact that the interest payments are tax deductible. The cost of Golden Gate's equity capital is the investment opportunity rate of Golden Gate's investors, that is, the rate they could earn on investments of similar risk to that of investing in Golden Gate Construction Associates. The Interest rate on Golden Gate's $62 million of long-term debt is 8 percent, and the company's tax rate is. 30 percent. The cost of Golden Gate's equity capital is 15 percent. Moreover, the market value (and book value) of Golden Gate's equity is $81 million. The company has two divisions: the real estate division and the construction division. The divisions' total assets, current liabilities, and before-tax operating income for…
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Tool Manufacturing has an expected EBIT of $74,000 in perpetuity and a tax rate of 21 percent. The company has $131,500 in outstanding debt at an interest rate of 6.8 percent and its unlevered cost of capital is 13 percent. What is the value of the company according MM Proposition I with taxes? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Company value
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Vaibhav
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