Ruby's Corporation needs to raise up its capital to RM80 million to expand its business. It plans to issue 20 million shares with a market value of RM2.50 per share, and the remaining of 30 million will be a debt financing through bonds. The par value and market value of each bond is RM1,000. The bonds pay annual interest before tax of 6.7%. The equity beta of firm is 1.5. The yield on risk free investment is 3% per year and the equity risk premium is approximately at 12% per year. The firm pays taxation at the annual rate 30%. From the above information, you are required to calculate: i. the after -tax cost of debt. ii. the cost of firm's equity. i. the weighted average cost of capital based on your answers in part (i) and (ii).

Ruby's Corporation needs to raise up its capital to RM80 million to expand its business. It plans to issue 20 million shares with a market value of RM2.50 per share, and the remaining of 30 million will be a debt financing through bonds. The par value and market value of each bond is RM1,000. The bonds pay annual interest before tax of 6.7%. The equity beta of firm is 1.5. The yield on risk free investment is 3% per year and the equity risk premium is approximately at 12% per year. The firm pays taxation at the annual rate 30%. From the above information, you are required to calculate: i. the after -tax cost of debt. ii. the cost of firm's equity. i. the weighted average cost of capital based on your answers in part (i) and (ii).

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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Wool Express (WE) has a capital structure of 30% debt and 70% equity. WE is considering a project that requires an investment of$2.6 million. To finance this project, WE plans to issue 10-year bonds with a coupon interest rate of 12%. Each of these bonds has a $1,000 face value and will be sold to net WE $980. If the current risk-free rate is 7% and the expected market return is 14.5%, what is the weighted cost of capital for WE? Assume WE has a beta of 1.20 and a marginal tax rate of 40%. Group of answer choices 13.4% 14.9% 12.4% 16.0%
If Smolinski, Incorporated, were an all-equity company, it would have a beta of 1.20. The company has a target debt-equity ratio of 70. The expected return on the market portfolio is 10 percent and Treasury bills currently yield 3.5 percent. The company has one bond issue outstanding that matures in 30 years, a par value of $1,000, and a coupon rate of 6.4 percent. The bond currently sells for $1,070. The corporate tax rate is 22 percent. a. What is the company's 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. What is the company's cost of equity? (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 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.) a. Cost of debt. b. Cost of equity c. WACC 5.00% 11.30 % 8.71%
A firm is planning on issuing new bonds and equity. The semiannual bonds will have a coupon rate 9% with a maturity of 15 years. The preferred stock pays a dividend of $6. The common stock's current dividend is $2.50 with a growth rate of 7%. The flotation costs on bonds is 5%, 7% on preferred stocks and 10% on common stock. The tax rate is 35%. The current price of the bonds is $975 while the price of the common stock is $53.50 and $55 for the preferred stock. If the growth rate falls to 6%, what is change in the cost of external equity? external equity falls by 8.5% external equity falls by 7% external equity falls by 6.5% external equity falls by 6%
This question is not incomplete. you need to calculate the cost of equity. I need Answer for the question number d and e. thanks Blooming Ltd. currently has the following capital structure:Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years.Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely.Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%.Company tax rate is 30% Required: Complete the following tasks:a) Calculate the current price of the corporate bond? b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%? c) Calculate the current value…
A firm has equity with market value $100 million and debt with market value at $70 million. The debt pays perpetual expected coupons of $3.5 million annually. The above numbers are prior to a stock buyback being announced. The firm uses some of its cash buyback stock on of $20 million. As a result of the fall in its cash, the expected coupon payment to debt reduce to $3.4 million (expected payments is the probability weighted future coupons, and the probability that in some future states of the world the firm would default has increased due to the the stock buyback). Also the rate of discount Rd for expected coupons paid to debt rises to 5.35%. Assume Modigliani-Miller is true (which also means there are no taxes). What will be the value of Equity after the stock buyback? (Do not include the $20 million that is paid to the Equity holders.)
The firm can raise an unlimited amount of debt by selling R1,000 par value, 8% coupon interest rate, 20 year bonds on which annual interest payments will be made. To sell the issue, an average discount of R50 per bond would have to be given. The firm also must pay flotation costs of R50 per bond. Firm is in 40% tax bracket. Determine after tax cost of debt. A. 5.86% B. 5.48% C. 5.46% D. 5.55%
6
Saeed Construction’s CFO has the following information to estimate the company’s weighted average cost of capital:The company currently has 20-year, 8.5% semi-annual coupon bonds that currently sells for Rs.945.The company’s stock has a beta of 0.80.The market risk premium, RPm , equals 3%.The risk-free rate is 2.4% and market rate is 5.4%. The company’s growth (g) = 0%, stock price (P0) = Rs.50, current dividend (D0) = Rs.2 and additional/new equity flotation cost = 15%.The company has outstanding preferred stock that pays a Rs.2.00 annual dividend. The preferred stock sells for Rs.25 a share.The company’s tax rate is 40%. The company’s capital structure consists of 40% long-term debt, 40% common stock, and 20% preferred stock. Requirement: Calculate Component cost of debt, cost of equity, cost of preferred stock and weighted average cost of capital.
If Php10,850.50 is the proceeds obtained after Php11,295.56 is discounted for 9 months, what is the discount rate? O 5.47% 33.33% O 44% O 5.25%
Answer please ABC questions. thanks
A firm can issue a 15-year, $1,000 par value bond with a 10% coupon rate, paying interest semiannually, at a price of $862.35. Their marginal tax rate is 40%. A dividend of $1.25 was just paid on the firm's common stock, and the firm's estimated growth rate is 8%. It can issue new common stock at $25.00 with a 20% floatation cost. The Risk-Free Return is 6%, the Market Return is 12%, and the firm's beta is 1.2. A) Calculate the firm's Cost of Debt, after Tax. B) Calculate the firm's Cost of Retained Earnings using the CAPM. C) Calculate the firm's Cost of new Common Stock. D) A firm has the following component costs of capital: Cost of Debt (after-tax): 10.5% Cost of Retained Earnings: 15.0% It's target capital structure is: Debt 40% Retained Earnings: 60% Estimate the firm's Weighted Average Cost of Capital (WACC)
Company XYZ is funded with $500 million equity and $475 million debt. The yield on bonds issued by XYZ is 7.85%. Its beta is 1.15 and the tax rate is 40%. The risk-free rate is 5% with the market risk premium 9%. The weighted average cost of capital for this firm is 10.17% 11.02% 12.02% 12.85% 13.60%

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