Please answer it Calculation of individual costs and WACC Lang Enterprises is interested in measuring its overall cost of capital. Current investigation has gathered the following data. The firm is inthe 26% tax bracket.Debt The firm can raise debt by selling $1,000-par-value, 8% coupon interest rate, 20-year bonds on which annual interest payments will be made. To sell the issue, an average discountof $25 per bond would have to be given. The firm also must pay flotation costs of $25 per bond.Preferred stock The firm can sell 7.5% preferred stock at its $100-per-share par value. The cost of issuing and selling the preferred stock is expected to be $7 per share. Preferred stockcan be sold under these terms.Common stock The firm's common stock is currently selling for $90 per share. The firm expects to pay cash dividends of $8 per share next year. The firm's dividends have been growingat an annual rate of 5%, and this growth is expected to continue into the future. The stock must be underpriced by $7 per share, and flotation costs are expected to amount to $6 per share.The firm can sell new common stock under these terms.Retained earnings When measuring this cost, the firm does not concern itself with the tax bracket or brokerage fees of owners. It expects to have available $130,000 of retained earningsin the coming year; once these retained earnings are exhausted, the firm will use new common stock as the form of common stock equity financing.a. The after-tax cost of debt using the approximation formula is 6.26 %. (Round to two decimal places.)The after-tax cost of debt using the bond's yield to maturity (YTM) is %. (Round to two decimal places.)

Cost of Debt: It represents the cost of raising debt capital from the debt holders. The debt…

Answered: The after-tax cost of debt using the…

Business

Finance

The after-tax cost of debt using the bond's yield to maturity (YTM) is %. (Round to two decimal places.)

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

Calculation of individual costs and WACC Lang Enterprises is interested in measuring its overall cost of capital. Current investigation has gathered the following data.The firm is in the 40% tax bracket.Debt The firm can raise debt by selling $1,000-par-value, 8% coupon interestrate, 20-year bonds on which annual interest payments will be made. To sell theissue, an average discount of $30 per bond would have to be given. The firm alsomust pay flotation costs of $30 per bond.Preferred stock The firm can sell 8% preferred stock at its $95-per-share parvalue. The cost of issuing and selling the preferred stock is expected to be $5 pershare. Preferred stock can be sold under these terms.Common stock The firm’s common stock is currently selling for $90 per share.The firm expects to pay cash dividends of $7 per share next year. The firm’s dividendshave been growing at an annual rate of 6%, and this growth is expected tocontinue into the future. The stock must be underpriced by $7 per share,…
Humble Manufacturing is interested in measuring its overall cost of capital. The firm is inthe 40% tax bracket. Current investigation has gathered the following data:Debt The firm can raise debt by selling $1,000-par-value, 10% coupon interest rate, 10-year bonds on which annual interest payments will be made. To sell the issue, anaverage discount of $30 per bond must be given. The firm must also pay flotation costsof $20 per bond.Preferred stock The firm can sell 11% (annual dividend) preferred stock at its $100-per-share par value. The cost of issuing and selling the preferred stock is expected to be $4per share.Common stock The firm’s common stock is currently selling for $80 per share. The firmexpects to pay cash dividends of $6 per share next year. The firm’s dividends have beengrowing at an annual rate of 6%, and this rate is expected to continue in the future. Thestock will have to be underpriced by $4 per share, and flotation costs are expected toamount to $4 per share.Retained…
Humble Manufacturing is interested in measuring its overall cost of capital. The firm is inthe 40% tax bracket. Current investigation has gathered the following data:Debt The firm can raise debt by selling $1,000-par-value, 10% coupon interest rate, 10-year bonds on which annual interest payments will be made. To sell the issue, anaverage discount of $30 per bond must be given. The firm must also pay flotation costsof $20 per bond.Preferred stock The firm can sell 11% (annual dividend) preferred stock at its $100-per-share par value. The cost of issuing and selling the preferred stock is expected to be $4per share.Common stock The firm’s common stock is currently selling for $80 per share. The firmexpects to pay cash dividends of $6 per share next year. The firm’s dividends have beengrowing at an annual rate of 6%, and this rate is expected to continue in the future. Thestock will have to be underpriced by $4 per share, and flotation costs are expected toamount to $4 per share.Retained…
LOFTA Corporation is interested in measuring the cost of each specific type of capital as well as the weighted average cost of capital. Historically, the firm has raised capital in the following manner: The tax rate of the firm is currently 30%. The needed financial information and data are as follows: Debt LOFTA can raise debt by selling $1,000-par-value, 6.5% coupon interest rate, 10-year bonds on which annual interest payments will be made. To sell the issue, an average discount of $20 per bond needs to be given. There is an associated flotation cost of 2% of par value. Preferred stock Preferred stock can be sold under the following terms: The security has a par value of $100 per share, the annual dividend rate is 6% of the par value, and the flotation cost is expected to be $4 per share. The preferred stock is expected to sell for $102 before cost considerations. Common stock The current price of Nova’s common stock is $35 per share. The cash dividend is expected to be $3.25 per…
LOFTA Corporation is interested in measuring the cost of each specific type of capital as well as the weighted average cost of capital. Historically, the firm has raised capital in the following manner: The tax rate of the firm is currently 30%. The needed financial information and data are as follows: Debt LOFTA can raise debt by selling $1,000-par-value, 6.5% coupon interest rate, 10-year bonds on which annual interest payments will be made. To sell the issue, an average discount of $20 per bond needs to be given. There is an associated flotation cost of 2% of par value. Preferred stock Preferred stock can be sold under the following terms: The security has a par value of $100 per share, the annual dividend rate is 6% of the par value, and the flotation cost is expected to be $4 per share. The preferred stock is expected to sell for $102 before cost considerations. Common stock The current price of Nova’s common stock is $35 per share. The cash dividend is expected to be…
LOFTA Corporation is interested in measuring the cost of each specific type of capital as well as the weighted average cost of capital. Historically, the firm has raised capital in the following manner: The tax rate of the firm is currently 30%. The needed financial information and data are as follows: Debt LOFTA can raise debt by selling $1,000-par-value, 6.5% coupon interest rate, 10-year bonds on which annual interest payments will be made. To sell the issue, an average discount of $20 per bond needs to be given. There is an associated flotation cost of 2% of par value. Preferred stock Preferred stock can be sold under the following terms: The security has a par value of $100 per share, the annual dividend rate is 6% of the par value, and the flotation cost is expected to be $4 per share. The preferred stock is expected to sell for $102 before cost considerations. Common stock The current price of Nova’s common stock is $35 per share. The cash dividend is expected to be $3.25 per…
URGENT PLEASE d. Calculate the firm's weighted average cost of capital using the capital structure weights shown in the following table . (Round answer to the nearest 0.01%)
You would like to estimate the weighted average cost of capital for a new airine business. Based on its industry asset beta, you have already estimated an unlevered cost of capital for the firm of 8%. However, the new business will be 23% debt financed, and you anticipate its debt cost of capital will be 5%. If its corporate tax rate is 30%, what is your estimate of its WACC? The equity cost of capital is. (Round to two decimal places.)
Want a complete detailed answer with formulas and steps Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 25% debt and 75% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, Rf, is 5%; the market risk premium, RPM, is 6%; and the firm’s tax rate is 40%. Currently, Cyclone’s cost of equity is 14%, which is determined by the CAPM. What would be Cyclone’s estimated cost of equity if it changed its capital structure to 50% debt and 50% equity? based on cost of equity estimations, Should the firm change its capital structure?
You have the following data for your company. Market Value of Equity: $520 Book Value of Debt: $130 Required rate of return on equity: 12% Required rate of return on debt (pre-tax): 7% Corporate tax rate: 25% The company's debt is assumed to be is reasonably safe, so the book value of debt is a reasonably approximation for the market value of debt. What is the weighted average cost of capital for this company?
The firm earns 5% on current assets and 15% on fixed assets. The firm's current liabilities cost 7% to maintain and the average annual cost of long-term funds is 20 %. Calculate the firm's initial net working capital. Calculate the firm's initial ratio of current assets to total assets. Critically evaluate THREE (3) advantages of commercial paper that usually used by the largest and most credit-worthy companies.
You have the following information about Burgundy Basins, a sink manufacturer. Equity shares outstanding Stock price per share Yield to maturity on debt Book value of interest-bearing debt Coupon interest rate on debt Market value of debt Book value of equity Cost of equity capital Tax rate a. What is the internal rate of return on the investment? Note: Round your answer to 2 decimal places. Internal rate of return 20 million Burgundy is contemplating what for the company is an average-risk investment costing $30 million and promising an annual ATCF of $4.5 million in perpetuity. % $ 35 7.5% $ 330 million 4.0% $225 million $370 million 11.0% 35%

SEE MORE QUESTIONS

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