Quizner, Inc. a small manufacturing business (<$1million revenues) just finished their 3rd year of business. Right now the yield on the 20yr, T-bond rate is 2.00%, and the equity premium is 5%. Quizner, Inc. has a weak competitive position compared to its competitors (Firm specific characteristics), so need to adjust the discount rate by 4% to reflect this. What is the appropriate discount rate for a present value analysis of Quizner, Inc's pro-forma? O 39% 19% 35% 31%

Quizner, Inc. a small manufacturing business (<$1million revenues) just finished their 3rd year of business. Right now the yield on the 20yr, T-bond rate is 2.00%, and the equity premium is 5%. Quizner, Inc. has a weak competitive position compared to its competitors (Firm specific characteristics), so need to adjust the discount rate by 4% to reflect this. What is the appropriate discount rate for a present value analysis of Quizner, Inc's pro-forma? O 39% 19% 35% 31%

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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The firm Summer! Has a market capitalization of 800 and debt with a market value of 200. The equity beta is 1. the debt beta is 0, and the riskiness of the tax shield equals the riskiness of the assets. The all equity firm NewSummer! is in a similar line of business and has expected cash flows after tax of 80 in perpetuity (starting next year. The corporate tax rate is 30% and there are no personal taxes. The riskfree rate is 4% and the expected rate of return on the market portfolio is 9%. You have been asked to look into the implications of adding debt to the capital structure of NewSummer: You decide to investigate two debt policies. Policy 1 involves having a constant debt to value ratio of 50%. The debt will be risk free. Policy 2 involves having a fixed amount of debt of 500 in perpetuity, which can be issued at par with a coupon of 4%. Required: Calculate the market values immediately after the change in capital structure. calculate the following questions a) under policy 1 what…
You are going to value Lauryn's Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.5, a debt-to-equity ratio of .4, and a tax rate of 21 percent. Based on this information, what is the asset beta for Lauryn's? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Lauryn's asset 1.22 x beta
Akita is trying to estimate the value of its business given the following information: Government securities generates a yield of 4.5% Akita, being a relatively mature business was able to determine its credit spread to be at 2.5% for a 3-year maturity instrument and increases by 0.5% for each additional year to maturity Current debt instruments issued by Akita is only a Php1,000,000 debt instrument with a 5 year tenor issued last year carrying a 7% coupon Other than the debt instrument issued, Akita also paid back shareholders at a Php8.00 dividend per share this year based on its Php10.0 earnings per share Book value per share of equity instruments is currently at Php15.00 1. How much is the expected cost of equity assuming that the current price per share is Php75.00? 2. How much is the market value Akita's sole debt instrument? 3. How much is the WACC for Akita assuming that the current price per share is Php75.00 and tax rate at 30%?
Jenkins, Inc., has equity with a market value of $22.6 million and debt with a market value of $11.3 million. The cost of debt is 8 percent per year. Treasury bills that mature in one year yield 4 percent per year, and the expected return on the market portfolio over the next year is 10 percent. The beta of the company's equity is 1.11. The firm pays no taxes. a. What is the company's debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the company's weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the cost of capital for an otherwise identical all-equity firm? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Debt-equity ratio b. Weighted average cost of capital C. Cost of capital 0.50 % %
Subject - account Please help me. Thankyou.
Wilde Software Development has a 10% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant 4% rate after Year 3. Wilde's tax rate is 25%. Interest expenses Year 1=$70 , Year 2= $85, Year 3= $125. What is the horizon value of the interest tax shield? PLEASE Do not round intermediate calculations And please round the answer to the nearest cent. Please show me the steps I don't know what I'm doing wrong!
Hallmark, the greeting card company, is considering going online. It is anticipated that it will cost the firm RM 1 billion to do so and that the firm will be able to use its current debt capacity to borrow 20% of this investment, at an after-tax cost of 4.5%. Hallmark has a beta of 1.1. Online retailers have a beta of 1.50 and do not carry debt. If the riskless rate is 6% and the market risk premium is 5.5% estimate the cost of capital for the online investment.
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A company is considering its optimal capital structure. The firm currently has 1 million shares outstanding at $ 20 per share (tax rate = 40%) and a debt balance of $5 million. Currently, its (levered) beta is 1.5 and its ERP is 5.5%. The current risk-free rate is 5%. Your research indicate the following ratings and pre-tax cost of debt across the different debt ratios: D/(D+E) Rating Pre-tax cost of debt 0% AAA 10% 10% AA 10.5% 20% A 11% 30% BBB 12% 40% BB 13% 50% B 14% 60% CCC 16% 70% CC 18% 80% C 20% 90% D 25% a. Using the optimal WACC approach, what is the firm's optimal debt ratio? b. Calculate the company's unlevered value, assuming that the probability of default is 5% and the company loses 30% of its value in the event of a default.
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Stevenson's Bakery is an all-equity firm that has projected perpetual EBIT of $183,000 per year. The cost of equity is 13.1 percent and the tax rate is 21 percent. The firm can borrow perpetual debt at 6.3 percent. Currently, the firm is considering converting to a debt–equity ratio of .93. What is the firm's levered value? MM assumptions hold. A. $829,786 B. $1,215,262 C. $1,155,579 D. $997,511 E. $921,985
You are considering buying stock in the following two banks. Each of the banks has assets that are solely long-term corporate bonds. Bank One is financed by 10% equity and 90% deposits. Bank Two is financed by 25% equity and 75% deposits. Which of the following scenarios would lead to the best outcome for Bank One relative to Bank Two? Higher inflation A recession Improving corporate credit ratings

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