Merk is currently all - equity financed with a value of $118 million and cost of equity. What is the new cost ofequity for Merk, if its capital structure is changed to include $18 million of debt with a cost of debt of 5% ?Answer in percent points and include four decimal places; do not include the '%' in your answer, e.g., 10.1234 would be entered if the answer was 10.1234 %.

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Answered: Merk is currently all - equity financed…

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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ont question Kose, Inc., has a target debt-equity ratio of 1.63. Its WACC is 7.4 percent, and the tax rate is 25 percent. Required: If the company's cost of equity is 15 percent, what is its pretax cost of debt? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 3216.) a. b. If instead you know that the aftertax cost of debt is 5.6 percent, what is the cost of equity? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 3216.)
Bruder & Co is a company with a market debt-equity ratio of 1.00. Suppose its current cost of debt is 5%, and its cost of equity is 12%. Suppose also that if Bruder & Co. takes some additional debt and uses the proceeds to buy some shares from the open market, which implies an increase in its debt- equity ratio to 1.50. a) This will also increase its cost of debt to 6 %. Determine the cost of equity after this transaction. b) Determine the WACC after this transaction.
6) Needham Pharmaceuticals has a profit margin of 2% and an equity multiplier of 2.0. Its sales are $110 million and it has total assets of $50 million. What is its return on equity (ROE)? Do not round intermediate calculations. Round your answer to two decimal places.
Based on the above information, calculate the sustainable growth rate for Kayla's Heavy Equipment.
Given that the firm has a value of $1,196,428.57 when it is all equity, what will be the value of the firm if Ice Cream Sandwich Co. borrows $160,000 of permanent debt and uses the proceeds to buy back stock? Enter your answer rounded to two decimal places.
Firms A and B are identical except for their capital structure. A carries no debt, whereas B carries £60m of debt on which it pays a 5% interest rate. Assume no transaction costs, no taxes and risk-free debt. The relevant numbers are provided in the following table (in £ m): A B Value of Firm 100 120 Debt 60 Equity 100 60 Projected earnings before interest 12 12 Interest payment Not Interest rate Applicable 5% Please answer the following questions a) "The situation described in the table is consistent with the absence of arbitrage opportunities". True or False (T/F)? b) Which one of the two firms is relatively overvalued (A/B)? c) "B's shares carry more risk than A's shares". True or False (T/F)? d) What is the return to an investor holding a 10% stake in B (in £ '000)? e) Consider an investor who wants to purchase a 20% stake in A. If he wished to replicate B's capital structure through homemade leverage, how much would he need to borrow to finance his position in £m? ) What is the…
c. What will the marginal cost of capital be immediately after that point? (Equity will remain at 45 percent of the capital structure, but will all be in the form of new common stock, Kn.) Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Marginal cost of capital % d. The 5.0 percent cost of debt referred to above applies only to the first $36 million of debt. After that, the cost of debt will be 8.5 percent. At what size capital structure will there be a change in the cost of debt? Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10"). Capital structure size (Z) million e. What will the marginal cost of capital be immediately after that point? (Consider the facts in both parts cand d.) Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Marginal cost of capital %
he Nelson Company has $1,170,000 in current assets and $450,000 in current liabilities. Its initial inventory level is $280,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.2? Do not round intermediate calculations. Round your answer to the nearest dollar. $ What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Do not round intermediate calculations. Round your answer to two decimal places.
The Nelson Company has $1,137,500 in current assets and $455,000 in current liabilities. Its initial inventory level is $310,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 1.8? Do not round intermediate calculations. Round your answer to the nearest dollar. $ What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Do not round intermediate calculations. Round your answer to two decimal places.
CoffeeCarts has a cost of equity of 15.1%, has an effective cost of debt of 3.8%, and is financed 69% with equity and 31% with debt. What is this firm's WACC? CoffeeCarts's WACC is __ % ? (Round to one decimal place.)
Vijay
Ursala, Incorporated, has a target debt-equity ratio of 1.20. Its WACC is 8.7 percent, and the tax rate is 25 percent. a. If the company's cost of equity is 13 percent, what is its pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If instead you know that the aftertax cost of debt is 5.8 percent, what is the cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of debt b. Cost of equity 6.31 % 13.39 %

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