In 2024, NovaTech Inc. has long-term debt of $30 million at an average interest rate of 9%. Thecompany's market capitalization is $80 million. If the tax rate is 40% and the cost of equity is14%, determine the weighted average cost of capital. Note that the company also has a non-operational land asset valued at $5 million and office furniture valued at $500,000. Calculate theafter-tax cost of debt for the Summit Medical Group, a for-profit healthcare provider, given thefollowing details:•The coupon rate on its debt is 9 percent.The tax rate is 25 percent.The Summit Medical Group also has a cash reserve of $50,000 and pays a $200 monthlyutility bill.

Part 1: Nova Tech Inc. WACCGiven:Long-term debt = $30 millionInterest rate on debt = 9%Market…

Answered: In 2024, NovaTech Inc. has long-term…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 5P

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New Energy’s capital structure today is $1,347 million in Long Term Debt and $1,655 million in Common Equity. If its debt were issued today, New Energy would pay an interest rate of 8.2%/year (before tax). New Energy’s Cost of Equity is estimated to be 12%/year. Given a tax rate of 30%, what is New Energy’s Weighted Average Cost of Capital (WACC)? (Your answer should be a % carried to 2 places.)
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For 2022, You're Doing Great Corporation reported $22 million in sales and $19 million In operating costs Cincluding depreciation). The company has $15 million of total invested capital. Its after-tax cost of Capital is 10%, and its tax rate is 25%. What was the firm's economic value added (EVA) during 2022?
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You have been asked to estimate the value of General Communications, a telecomm firm. General Communications has a debt to capital ratio of 30%, a beta of 1.10 and a pre-tax cost of debt of 7.5%. The firm had earnings before interest and taxes of $ 600 million in 2020 (fiscal year end is March 31, 2020), kfter depreciation charges of $300 million. The firm had capital expenditures of $360 million, and non-cash working capital increased by $50 million during 2016. The firm also had a book value of capital of $ 2 billion at the beginning of 2019 fiscal year. 3. (The Treasury bond rate is 5%, the market risk premium is 6.3% and the firm has a tax rate of 40%). Assuming that the firm is in stable growth, and that the return on capital and reinvestment rates from 2019 can be sustained forever. Estimate the value of the firm at the beginning of 2020 fiscal year.
You have been asked to estimate the value of General Communications, a telecomm firm. General Communications has a debt to capital ratio of 30%, a beta of 1.10 and a pre-tax cost of debt of 7.5%. The firm had earnings before interest and taxes of $ 600 million in 2020 (fiscal year end is March 31, 2020), after depreciation charges of $300 million. The firm had capital expenditures of $360 million, and non-cash working capital increased by $50 million during 2016. The firm also had a book value of capital of $ 2 billion at the beginning of 2019 fiscal year. (The Treasury bond rate is 5%, the market risk premium is 6.3% and the firm has a tax rate of 40%). Assuming that the firm is in stable growth, and that the return on capital and reinvestment rates from 2019 can be sustained forever. Estimate the value of the firm at the beginning of 2020 fiscal year.
In order to finance a new project, a company borrowed $4,000,000 at 8% per year with the stipulation that the company would repay the loan plus all interest at the end of one year. Assume the company’s effective tax rate is 39%. What was the company’s cost of debt capital (a) before taxes, and (b) after taxes? (c) Compare the calculated after-tax cost with the approximated cost using Equation [10.4].
The Black Bird Company plans an expansion. The expansion is to be financed by selling $21 million in new debt and $57 million in new common stock. The before-tax required rate of return on debt is 9.77% percent and the required rate of return on equity is 13.11% percent. If the company is in the 34 percent tax bracket, what is the weighted average cost of capital?
Wizard Co. is considering a project that will require $650,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 40%. What will be the ROE (return on equity) for this project if it produces an EBIT of -$40,000? When calculating the tax effects, assume that Wizard Co. as a whole will have a large, positive income this year. O -3.0% O -3.7% O -4.4% O -3.1%

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