Sun Products Company (SPC) uses only debt and equity. It can borrow unlimited amounts at an interest rate of 12% so long as it finances at its target capital structure, which calls for 45% debt and 55% common equity. Its last dividend was $2.40, its expected constant growth rate is 5%, and its stock sells for $24. What is SPC's cost of equity?
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- What is the value of equity and debt?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.An unlevered firm has expected earnings of $2,401 and a market value of equity of $19,600. The firm is planning to issue $4,000 of debt at 6 percent interest and use the proceeds to repurchase shares at their current market value. Ignore taxes. What will be the cost of equity after the repurchase?
- A firm has a debt-to-equity ratio of 1.20. If it had no debt, its cost of equity would be 15%. Its cost of debt is 10%. What is its cost of equity if there are no taxes or other imperfections? A. 10% B. 15% C. 18% D. 21% E. None of these.Alpha Corporation has average annual free cashflows to the equity holder and to the firmof P3,000,000 and P3,350,000 respectively. Assuming that the weighted average cost ofcapital and actual return of on assets is 16.75% while the market return on Alpha's debt is7%, what is the value of its equity? a. P34,358,974.36 b.P15,000,000.00 c.P17,910,447.76 d.P20,000,000.00Tomorrow Co is financed entirely by equity that is priced to offer a 14% expected return on equity. If the company repurchases 40% of equity and substitutes an equal value of debt yielding 8%, what is the expected return on equity after refinancing? (Ignore taxes and cost of financial distress.)
- The Rivoli Company has no debt outstanding, and its financial position is given by the following data: What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share? Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Based on the new capital structure, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? Based on the new capital structure, what is the new stock price? What is the remaining number of shares? What is the new earnings per share?According to MM propositions, at what debt-equity ratio should the cost of equity be the lowest?Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 10% as long as it finances at its target capital structure, which calls for 25% debt and 75% common equity. Its last dividend (D 0) was $2.55, its expected constant growth rate is 3%, and its common stock sells for $ 22. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 14%, and Project B's return is 8%. These two projects are equally risky and about as risky as the firm's existing assets. What is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the WACC? Do not round intermediate calculations. Round your answer to two decimal places.
- Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 11% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. Its last dividend (D0) was $3.25, its expected constant growth rate is 3%, and its common stock sells for $22. EEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 13%, and Project B's return is 10%. These two projects are equally risky and about as risky as the firm's existing assets. A. What is its cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations. B. What is the WACC? Round your answer to two decimal places. Do not round your intermediate calculationsEmpire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 11% as long as it finances at its target capital structure, which calls for 35% debt and 65% common equity. Its last dividend (D0) was $2.85, its expected constant growth rate is 5%, and its common stock sells for $29. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 14%, and Project B's return is 10%. These two projects are equally risky and about as risky as the firm's existing assets. What is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the WACC? Do not round intermediate calculations. Round your answer to two decimal places. % Which projects should Empire accept?Biotec has estimated the costs of debt and equity capital for various proportions of debt in its capital structure: % of Debt Cost of Debt (%) Cost of Equity (%) 35 5.4 13.8 40 5.6 14.0 45 5.9 14.3 50 6.4 14.7 If Biotec pays a current dividend of $1.00 and expects dividends to grow at a constant rate of 7%, what is Biotec's stock price if it obtains its optimal capital structure?
