Tom Manufacturing Corp. desires a weighted average cost of capital of 8%. The firm has an after-tax cost of debt of 5% and a cost of equity of 14%. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital? A. 0.25 B. 0.50 C. 1.50 D. 2.00 E. 3.00
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Tom Manufacturing Corp. desires a weighted average cost of capital of 8%. The firm has an after-tax cost of debt of 5% and a cost of equity of 14%. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital? A. 0.25 B. 0.50 C. 1.50 D. 2.00 E. 3.00
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- The Kanucks Ltd wants to have a weighted average cost of capital of 11 .25%. The firm has an after-tax cost of debt of 5% and a cost of equity of 13 %. What debt-equity ratio is needed for the firm to achieve the targeted weighted average cost of capital? Multiple Choice0.250.220.280.330.42Assume that your company is trying to determine its optimal capital structure, which consists only of debt and common stock. To estimate the cost of debt, the company has produced the following table: 09.86% 9.56% Percent Financed With Debt 10.16% 8.96% 9.26% 0.10 0.20 0.30 0.40 0.50 Percent Financed With Equity 0.90 0.80 0.70 0.60 0.50 Debt/Equity Ratio Now assume that the company's tax rate is 40 percent, that the company uses the CAPM to estimate its cost of common equity, Ks, that the risk-free rate is 5 percent and the market risk premium is 6 percent. Finally assume that if it has no debt its WACC would be equal to its cost of equity which would be equal to 11 percent (you should now be able to determine its "unlevered beta," bu). 0.10/0.90 0.11 0.20/0.80 0.25 Given this information, determine the firm's cost of capital if it finances with 40 percent debt and 60 percent equity. 0.30/0.70=0.43 0.40/0.600.67 0.50/0.50 = 1.00 Bond Rating AA A A BB B Before-Tax Cost of Debt 7.0% 7.2%…8.4 Richmond Clinic has obtained the following estimates for its costs of debt and equity at various capital structures: Debt (%) After-Tax Cost of Debt (%) Cost of Equity (%) 0 — 16.0 20 6.6 17.0 40 7.8 19.0 60 10.2 22.0 80 14.0 27.0 What is the firm’s optimal capital structure? (Hint: Calculate its corporate cost of capital at each structure. Also, note that data on component costs at alternative capital structures are not reliable in real-world situations)
- You are analyzing the cost of capital for a firm that is financed with 65 percent equity and 35 percent debt.The cost of debt capital is 8 percent, while the cost of equity capital is 20 percent for the firm. What is the overall cost of capital for the firm? Select one: a. None of these b. 12.2% с. 15.8% d. 20.2%A firm has two components in its capital structure, debt and equity. The after-tax cost of debt is 3% and the cost of equity is 11%. The proportion of equity in the capital structure is 75%. What is the firm's Weighted Average Cost of Capital? Select one: a. 9.47% b. 8.78% c. 9.00% d. 8.37%As an Analyst you were tasked to compute for the Weighted Average Cost of Capital of variouscompanies given the following information. Income tax rate is 25% a. What is the cost of equity of each companies?b. What is the after tax cost of debt of each companies?c. What is the WACC of each companies? W Corp A Corp Co. Corp Ca Corp Risk Free rate 4.00% 3.00% 2.00% 3.50% Beta 1.25 % 1.50% 1.30% 1.40% Market Return 12.00% 11.00 % 10:00% 8:00% Debt to Equity Ratio 2.5 3 4 3.5 Credit Spread om BPS 200 300 250 150
- Calculation of individual costs and WACC BlackRock, Inc. (BLK) has a capital structure that consists of common stock equity and debt. The market capitalization of its equity is $76.644 billion and its debt has a market value of $6.797 billion. a. Calculate the market value weights for BLK's capital structure. b. Calculate BLK's cost of equity using a beta of 1.26, a risk-free rate of 0.78%, and a market risk premium of 6.70%. c. Calculate BLK's cost of debt using a bond price of $1,067.77, semi-annual coupon payment of $28.75, and 5 years to maturity. d. Calculate BLK's current WACC using a 21% corporate tax rate. a. The market value weight of long-term debt in BLK's capital structure is %. (Round to two decimal places.)Farma's Llamas has a weighted average cost capital need help this questionWhat is the cost of capital on the financial accounting question?
- Phil's Carvings Inc wants to have a weighted average cost of capital of 9.8 percent. The firm has an after- tax cost of debt of 6.6 percent and a cost of equity of 13.2 percent. What debt-equity ratio is needed for the firm to achieve their targeted weighted average cost of capital?13. Using Weighted Average Cost of Capital (WACC) ignoring taxes compute the cost of capital of a company with debt ratio of 0.75:1 and is paying yearly average interest for its loans of 4% and dividend rate of 5% yearly. a) 4.00% b) 4.25% c) 4.5% d) 5.00% 14. Using capital Asset Pricing Method (CAPM) compute for the cost of capital (equity) with risk free rate of 5%, market return of 12% and Beta of 1.3. a) 14.01% b) 14.10% c) 14.00% d) 14.11% 15. Using capital Asset Pricing Method (CAPM) compute for the cost of capital (equity) with risk free rate of 4%, market return of 8% and Beta of 1.5. a) 10.00% b) 11.00% c) 12.00% d) 13.00%Given the following, determine the firm’s optimal capital structure: Debt/Assets After-Tax Cost of Debt Cost of Equity 0 % 6 % 11 % 10 7 11 20 7 12 30 7 13 40 9 13 50 10 13 60 13 14 Round your answers for capital structure to the nearest whole number and for the cost of capital to one decimal place. The optimal capital structure: % debt and % equity with a cost of capital of % If the firm were using 60 percent debt and 40 percent equity, what would that tell you about the firm’s use of financial leverage? Round your answer for the cost of capital to one decimal place. If the firm uses 60% debt financing, it would be using financial leverage. At that combination the cost of capital is %. The firm could lower the cost of capital by substituting . What two reasons explain why debt is cheaper than equity? Debt is cheaper than equity because interest expense . In addition, equity investors bear risk. If the firm were…