Suppose Fried Fritters Ltd. pays a corporate tax rate of 30% and is financed as follows: • 30% senior secured debt with an annual yield of 4.8% • 10% unsecured junior debt with an annual yield of 9.9% • 50% common shares with an annual return on equity of 7.0% • 10% preferred shares with an annual return on equity of 8.0% The company is considering investing in a one-day training program for its chefs that will cost $10 million today, January 1. The trained chefs would then generate $1 million of extra revenue at the end of each year (December 31) for 16 years and then zero thereafter. Calculate the NPV of the program; type your answer in the box below, rounded to the nearest dollar.

Suppose Fried Fritters Ltd. pays a corporate tax rate of 30% and is financed as follows: • 30% senior secured debt with an annual yield of 4.8% • 10% unsecured junior debt with an annual yield of 9.9% • 50% common shares with an annual return on equity of 7.0% • 10% preferred shares with an annual return on equity of 8.0% The company is considering investing in a one-day training program for its chefs that will cost $10 million today, January 1. The trained chefs would then generate $1 million of extra revenue at the end of each year (December 31) for 16 years and then zero thereafter. Calculate the NPV of the program; type your answer in the box below, rounded to the nearest dollar.

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 company you work for wants you to estimate the company’s WACC; but before you do so, you need to estimate the cost of debt and equity. You have obtained the following info. 1) the firms non-callable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000 and a market price of $1,225.00. 2) thecompany’s tax rate is 40%. 3) the risk-free rate is 4.50%, the market risk premium 5.50%, and the stocks betta is 1.20. 4) the target capital structure consists of 35% debt and the balance common equity. The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. Calculate the company’s cost of retained earnings using the CAPM approach.
The Corp. is expected to pay $1.85 dividend a year and the dividend is expected to grow at a constant rate of 4.5% a year and the common stock currently sells for $35 a share before tax cost the debt is 5.5% and the tax rate is 40% the target capital structure consist of 40% debt and 60% common equity what is the companies WACC?
Linkcomn expects an Eamnings after Taxes of 7500005 every year. The firm currently has 100% Equity and cost of raising equity is 12%. If the company can borrow debt with an interest of 10% What will be the value of the company if the company takes on a debt equal to 60% of its unlevered value? What will be the value of the company if the company takes on a debt equal to 50% of its levered value? Assume the company's tax rate is 30% (Must show the steps of calculation)
Annamz Corp. is looking at two possible capital structures. Currently, the firm is an all-equity firm with $1.2 million dollars in assets and 200,000 shares outstanding. The market value of each stock is $6.00. The CEO of Annamz is thinking of leveraging the firm by selling $600,000 of debt financing. The cost of debt is 8% annually, and the current corporate tax rate for Annamz is 30%. What is the break-even EBIT for Annamz with these two possible capital structures?
Viserion, Incorporated, is trying to determine its cost of debt. The firm has a debt issue outstanding with 28 years to maturity that is quoted at 106 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. What is the company's pretax cost of debt? multiple choice 1 5.57% 6.69% 4.24% 6.13% 5.02% If the tax rate is 24 percent, what is the aftertax cost of debt? multiple choice 2 4.24% 3.81% 4.66% 5.93% 5.57%
Johnson Tire Distributors has debt with both a face and a market value of $90,000,000. This debt has a coupon rate of 7 percent and pays interest annually. The expected earnings before interest and taxes is a constant $50,000,000 in perpetuity. The company's tax rate is 25 percent, and the unlevered cost of capital is 25 percent. What is the firm's cost of equity? Write your answer as a percent rounded to two digits, but don't include the % sign (i.e. enter 12.63, not 0.1263). HINT: You need to use both M&M propositions. Numeric Response
Assume that you are on the financial staff of Jerry Inc., and you have collected the following data: The yield on the company's outstanding bonds is 8.75%; its tax rate is 40%; the next expected dividend is $0.75 a share; the dividend is expected to grow at a constant rate of 7.00% a year; the price of the stock is $15.00 per share; and the target capital structure is 40% debt and 60% common equity. What is the firm's WACC? 9.04% 9.80% 8.44% O7.64% 9.30%
Consider a firm with an EBITDA of $1,100,000 and an EBIT of $1,000,000. The firm finances its assets with $4,650,000 debt (costing 8.6 percent, all of which is tax deductible) and 216,000 shares of stock selling at $18 per share. To reduce risk associated with this financial leverage, the firm is considering reducing its debt by $2,700,000 by selling additional shares of stock. The firm's tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $1,000,000. Calculate the EPS before and after the change in capital structure and indicate changes in EPS. (Do not round intermediate calculations. Round your answers to 2 decimal places.) EPS before EPS after Changes in debt $ $ $ 2:19 1.80 0:40
Other relevant information about the company follows: The 20-year Treasury Bond rate is currently 4.5 percent and you have estimated market-risk premium to be 6.75 percent using the returns on stocks and Treasury bonds from 2010 to 2019. Pharmos Incorporated has a marginal tax rate of 25 percent. Required: Answer the following questions given the information above Calculate to the following for Pharmos considering its tax rate of 25%:i. Total Market Value for the Firmii. After-tax cost of Loan NO EXCEL SPREADSHEETS SHOW FULL WORKINGS WITHOUT EXCEL
DIRECTIONS: Read and analyze the following problems and supply what is required and support it with necessary computations. 1. A company plans to issue a 25-year bond with a 12.5% interest rate, issued at a face value of P1, 000. The company is subject a 30% tax rate and expects a return on investment at 8%. Compute for the cost of debt issuance.
The company you work for wants you to estimate the company’s WACC; but before you do so, you need to estimate the cost of debt and equity. You have obtained the following info. 1) the firms non-callable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000 and a market price of $1,225.00. 2) the company’s tax rate is 40%. 3)the risk-free rate is 4.50%, the market risk premium is 5.50%, and the stocks beta is 1.20. 4) the target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any common stock. WHAT is the WACC?

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