Read following information to answer question no. 14, 15 & 16.WRF Itd. is reviewing three possible capital structures, I, J and K, shown in the following table. Assume a40% tax rate.Capital componentCommon stock (Required return)Preferred stock (Annual dividend rate)Structure K5,000 shares (16%)$60,000 (20%)$240,000 (18%)Structure IStructure J10,000 shares (8%)$60,000 (20%)$40,000 (10%)7,500 shares (10%)$60,000 (20%)$140,000 (13%)Long-term debt (Coupon rate)Question No. 14Using appropriate measure, describe the level of financial risk of capital structure I, J & K.Question No. 15Find indifference points between capital structures J & K.Question No. 16Find indifference point between capital structures I & J.

The financial risk of the company would be considered as the risk of funds ascertainment, it's usage…

Read following information to answer question no. 14, 15 & 16. WRF Itd. is reviewing three possible capital structures, I, J and K, shown in the following table. Assume a 40% tax rate. Capital component Common stock (Required return) Preferred stock (Annual dividend rate) Structure I 10,000 shares (8%) $60,000 (20%) $40,000 (10%) Structure J 7,500 shares (10%) $60,000 (20%) $140,000 (13%) Structure K 5,000 shares (16%) $60,000 (20%) $240,000 (18%) Long-term debt (Coupon rate) Question No. 14 Using appropriate measure, describe the level of financial risk of capital structure I, J & K. Question No. 15 Find indifference points between capital structures J & K. Question No. 16 Find indifference point between capital structures I & J.

Read following information to answer question no. 14, 15 & 16. WRF Itd. is reviewing three possible capital structures, I, J and K, shown in the following table. Assume a 40% tax rate. Capital component Common stock (Required return) Preferred stock (Annual dividend rate) Structure I 10,000 shares (8%) $60,000 (20%) $40,000 (10%) Structure J 7,500 shares (10%) $60,000 (20%) $140,000 (13%) Structure K 5,000 shares (16%) $60,000 (20%) $240,000 (18%) Long-term debt (Coupon rate) Question No. 14 Using appropriate measure, describe the level of financial risk of capital structure I, J & K. Question No. 15 Find indifference points between capital structures J & K. Question No. 16 Find indifference point between capital structures I & J.

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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YE. Coyote Industries finances its projects with 25 percent debt, 20 percent Preferred Stock and 55 percent common stock, Based upon the information provided below, what is the company's weighted average cost of capital? Y. E. Coyote 768% Yield to Maturity of Bonds Dividend of Preferred Stock Dividend at time 0 (Do) $8.59 $4.93 Constant Growth Rate of Common Stock (g) Preferred Stock Price 4% $91.88 $53.04 Common Stock Price 21% Tax Rate Multiple Choice 10.85% 10.52% 976%
Railsplitters, Inc. has the following information for its capital structure: Instrument: Amount Issued Current Price YTM Bond A $500 Million 100.82 4.36% Bond B $350 Million 101.36 4.49% Common Stock 42.5 Million Shares $28.21 per share E(R ) Market = 8.65% β = 1.27 Expected Dividend = $1.95 Rf = 2.10% Growth Rate = 2.75% Given this information, if the tax rate of the firm is 30%, what is the after-tax cost of debt?
1. You are required to calculate the Weighted Average Cost of Capital (WACC) of Sethoo & Sons Limited from the data below: Black Limited Star Limited Number of Ordinary Shares (GH¢1.00) 2,000,000 1,000,000 Net Income available to Ordinary Shares 600,000 250,000 Gross Dividend 500,000 200,000 Market Price per share 3.00 2.00 Market value of Debts 3,000,000 1,500,000 Annual Growth rate of Dividend 12% 10% Gross Interest yield 10% 11% NOTE: The corporation tax rate is 50%. Debts are currently quoted at GH¢100 per block. 2. Explain why the Market Value Approach of calculating WACC is preferred to the Book Value Approach. 3. What are the uses of Weighted Average Cost of Capital?
Can you help me with B and c?
Percent of capital structure: Preferred stock Common equity (retained earnings) Debt Additional information: Corporate tax rate Dividend, preferred Dividend, expected common Price, preferred Growth rate Bond yield Flotation cost, preferred Price, common 15% 45 40 35% Debt Preferred stock Common equity (retained earnings) Weighted average cost of capital $ 8.00 $ 3.50 $ 105.00 98 8% $ 10.40 $ 78.00 Calculate the weighted average cost of capital for Digital Processing Incorporated Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. Weighted Cost 5.20 % 8.33 11.50 25.03 %
b) Calculate the cost of preferred shares for Y capital structure.
10. An investment entity provided the following data for the current year: Dividend income from investments 10,000,000Distribution income from trusts 500,000Interest income on deposits 700,000Income from bank treasury bills 100,000Income from dealing in securities held for trading 600,000Write-down on securities held for trading 150,000Other income 250,000Finance cost 300,000Administrative staff costs 3,800,000Sundry administrative costs 1,400,000Income tax expense 2,000,000Question 1: What is the income before tax?a. 12,000,000 c. 11,750,000b. 12,150,000 d. 11,550,000 Question 2: What is the total amount of expenses before tax?a. 7,500,000 c. 5,500,000b. 5,650,000 d. 7,650,000 Question 3: What is the net income for the year?a. 6,500,000 c. 4,650,000b. 4,500,000 d. 4,250,000
Capital structure of PT. PNA now is: 2. Debt IDR 2.000.000.000,- IDR 3,000,000,000,- Preference shares. Ordinary shares IDR 5,000,000,000 Fees for each funding, debt 6%, Preferred stock 6%, Commont stock 10% and tax 50%. The amount of profit for ordinary shareholders that is currently Rp. 2,000,000,000 and 50% will be paid as dividends, and the rest will be withheld. The company will use the retained earnings as additional capital with the assumption that the capital composition and average are maintained its cost of capital. From the data above calculate: A. Weighted cost of capital B. Additional total capital so that the composition of new capital remains constant C. Calculate the new capital structure
Capital structure of the ABC PJSC is as follows: Equity share capital market value $ 200 million, dividend $ 4 , market price per share $88, dividend growth 4%. Bond $ 300 million, Yield to maturity 4% , tax rate 20% Calculate weighted average cost of capital.
Dickson Corporation is comparing two different capital structures. Plan I would result in 26,000 shares of stock and $85,500 in debt. Plan II would result in 20,000 shares of stock and $256,500 in debt. The interest rate on the debt is 6 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $95,000. The all-equity plan would result in 29,000 shares of stock outstanding. What is the EPS for each of these plans? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations.) c. Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) d-1. Assuming that the corporate tax rate is 22 percent, what is the EPS of the firm? (Do not round intermediate calculations and round your answers to 2…

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