Suppose SnowWhite's common stock has a beta of 1.37, the risk-free rate is 3.4 percent, and the market risk premium is 8.2 percent. SnowWhite has equity with a market value of $1 million and debt with a market value of $ 0.45 million. The cost of debt is 7.6 percent. What is the WACC if the tax rate is 23 percent and all interest is tax deductible?

Suppose SnowWhite's common stock has a beta of 1.37, the risk-free rate is 3.4 percent, and the market risk premium is 8.2 percent. SnowWhite has equity with a market value of $1 million and debt with a market value of $ 0.45 million. The cost of debt is 7.6 percent. What is the WACC if the tax rate is 23 percent and all interest is tax deductible?

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

See similar textbooks

Similar questions

8)Glassmakers has the below characteristics. The premerger debt is $5, the premerger equity is $10. The risk free rate is 6%. The premerger beta is 1.36. The tax rate is 40%. The cost of debt premerger is 11%. The expected market rate of return is 10%. What discount rate should you use to discount Glassmakers' free cash flows and interest tax savings? 10.01% 10.06% 11.29% 11.44% 13.49%
Hampton Corporation has a beta of 1.6 and a marginal tax rate of 34%. The expected return on the market is 11% and the risk-free interest rate is 6%. Estimate the firm's cost of internal equity. 13.8% 6.56% 12.8% 12.5% 14.0%
Optimist Company can sell common shares at $30 per share and can obtain debt funding at 8 percent. It has a marginal income tax rate of 25 percent. The yield on US Treasury securities is 3 percent. The market risk premium is 6.0 percent, and the firm's beta is 0.9. It has a targeted debt-to-equity ratio of 1:1. What is its after-tax cost of debt? Maximum number of characters (including HTML tags added by text editor): 32,000 Show Rich-Text Editor (and character count)
XYZ Corp. has bonds outstanding with a coupon rate of 2% and a YTM of 5.7%. The risk - free rate of return is 2.2% and the market is returning 10.0%. The stock has a beta of 0.9 and the firm is financed with 45% debt and 55% equity. If the tax rate is 24%, what is XYZ's WACC?
You are trying to estimate the beta of a private company, whose debt-to-equity ratio is 0.72. Its corporate tax rate is 30%. Its public competitor has a beta of 1.5 and no debt. Your beta estimate is
What is the WACC for Snuggly Baby Corp. if the tax rate is 25.00% and the firm has 6,182,000.00 shares of common equity priced at $14.00 each with an expected return of 19.74% and an expected real return of 14.61%; 1,001,000.00 shares of preferred equity priced at $32.00 each with an expected return of 16.14% and an expected real return of 11.16%; and 78,600.00 bonds that are priced at $923.00 each, and have a current yield of 11.22%, a yield-to-maturity of 11.63%, and a coupon rate of 10.38%?(Round the value to 100th decimal)
XYZ Corp. has a debt-to-equity ratio of 0.6 and an equity beta of 1.7. What will be the firm’s equity beta if it changes its target debt-to-equity ratio to 0.75? Assume the firm has risk-free debt.
Suppose that MNINK Industries’ capital structure features 63 percent equity, 8 percent preferred stock, and 29 percent debt. Assume the before-tax component costs of equity, preferred stock, and debt are 11.40 percent, 9.30 percent, and 8.00 percent, respectively.What is MNINK’s WACC if the firm faces an average tax rate of 21 percent and can make full use of the interest tax shield? (Round your answer to 2 decimal places.)
A firm is financed 75% by common stock, 9% by preferred stock and 18% by debt. The required return is 11% on the common, 9% on the preferred, and 4% on the debt. If the tax rate is 21% what is the WACC?
Orion is financed with 26% debt and the rest equity. Orion has an equity beta of 1.2, a debt beta of 0 and a marginal tax rate of 26%.If Orion issues debt to repurchase equity so that the new firm is now 52% debt, what will be its new equity beta? (Continue to assume the debt beta remains at 0.)
NewLinePhone Corp. is very risky, with a beta equal to 2.8 and a standard deviation of returns of 32%. The risk-free rate of return is 3% and the market risk premium is 8%. NewLinePhone's marginal tax rate is 35%. Use the capital asset pricing model (CAPM) to estimate NewLinePhone's cost of retained earnings. (*You must show your calculation process as well.)
Corcovado Pharmaceuticals. Corcovado Pharmaceutical’s cost of debt is 7%. The risk-free rate of interest is 3%. The expected return on the market portfolio is 8%. After effective taxes, Corcovado’s effective tax rate is 25%. Its optimal capital structure is 60% debt and 40% equity. If Corcovado’s beta is estimated at 1.1, what is its weighted average cost of capital? If Corcovado’s beta is estimated at 0.8, significantly lower because of the continuing profit prospects in the global pharma sector, what is its weighted average cost of capital?

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS