Total Value of CommonStocks (CS)Total Value of PreferredStocks (PS)Total Value of Debt (D)O 19.79%O 14.97%26.94%Cost of Equity$800,000 (common stocks)O none of the answers is correct16.17%$200,000 Cost of Preferred stockPre-tax Cost of Debt$400,000Tax rate (t)0.230.10.080.3

Formula:WACC = (E/V) * Ke + (PS/V) * Kps + (D/V) * (Kd * (1 - t))Where:E = Total Value of Common…

Answered: Total Value of Common Stocks (CS) Total…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The common stock and debt of Android Corp. are valued at $61 million and $30 million, respectively. Investors currently require a 14% return on the common stock and an 6% return on the debt. There are no taxes. Calculate the weighted average cost of capital. Enter your answer as a percentage. Do not include the percentage sign in your answers. Enter your answer rounded to 2 DECIMAL PLACES. WACC 8.62 Correct response: 11.36±0.02 Click "Verify" to proceed to the next part of the question. This question has 3 parts, so you will be clicking verify 3 times. Suppose Android Corp. had an additional $12 million of debt and had $12 million less of common stock, what would be the expected return on the stock? Assume that the change in capital structure would not affect the risk of the debt, and recall that the WACC under the initial capital structure is 11.36%. Enter your answer a percentage. Do not include the percentage sign in your answer. Enter your answer rounded to 2 DECIMAL PLACES. "E =…
M... Levered Beta Market Value of Equity Market Value of Debt: Cash Marginal Tax Rate Firm A 1.50 $2.4 million $600 million $50 million 37% Firm B 1.25 $1.0 billion $200 million $75 million 37% 2b. Compute the unlettered beta corrected for cash for each firm (show work). 2c. Using the unlettered beta for corrected for cash, calculate the unlevered beta of Firm A after the acquisition (show work) 2d. Firm A borrowed $1.0 billion and assumed Firm B's debt. Compute the levered beta of Firm A after the acquisition.
Question 2: Bermuda Cruises issues only common stock and couponbonds. The firm has a debt-equity ratio of .45. The cost of equity is 17.6percent and.Required: What is the pre-tax cost of the company debt if weightedaverage costs of the company is 13.5% and the firm's tax rate is 35percent?
An analyst following Barlow Energy has compiled the following information in preparation for additional analysis she has to include in a report she has been asked to produce (data is in hundreds of millions of $): Before-Tax Required Market Value Security Type Preferred stock Bonds Common stock Total: ● $200 $800 $600 $1,600 Bonds are trading at par Preferred share dividends: Net income available to common: • Investment in working capital: • Investment in fixed capital: Net new borrowing: Depreciation: • Tax rate: Long-term growth rate of FCFF: Long-term growth rate of FCFE: • WACC: $2,560.47 $2,784.40 $2,964.08 $3,197.15 Return. 10% 8% 13.0% $20 $135 $37 $94 $47 5% 4% $42 30% 8.925% The total value of Barlow Energy using a single-stage FCFF model is closest to:
Use the following information about Red Rocks Inc. to answer the following question: Assume the following: Pays no taxes Return on net operating assets (RNOA) = 18% %3D Has $2,000 in net operating assets financed by equity At the beg. of the year borrows $1000 at 8%. Uses debt to buy additional operating assets. What is the return on equity (ROE) for Red Rocks? Edit View Insert Format Tools Table 12pt v Paragraph v B IU A e T?v I.
4
Investing: Lesser-known Stocks The following question is based on the following information about the stocks of Whitestone REIT, Tokio Marine Holdings, Inc., and Seagate Technology Holdings PLC.+ Price ($) Dividend Yield (%) WSR (WSR Whitestone REIT) 10 4 TKOMY (Tokio Marine Holdings, Inc.) 53 4 STX (Seagate Technology Holdings PLC) 84 3 You invested a total of $7,850 in shares of the three stocks at the given prices, and expected to earn $272 in annual dividends. If you purchased a total of 200 shares, how many shares of each stock did you purchase?
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Given the following information: Percent of capital structure: Preferred stock Common equity (retained earnings) Debt Additional information: Corporate tax rate. Dividend, preferred $ 5.00 Dividend, expected common $ 5.50 Price, preferred $101.00 Growth rate Bond yield. 34% 4% 5% Flotation cost, preferred $5.20 Price, common $ 74.00 Debt Preferred stock Common equity (retained earnings) Weighted average cost of capital 20% 70 10. Calculate the weighted average cost of capital for Digital Processing Inc. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Notice that this problem asks for the weighted costs. These are the unweighted costs times the weights. Like this: (ka)(wa) weighted cost of debt. Weighted Cost % 0.00%
Given the following information: Percent of capital structure: Debt Preferred stock Common equity (retained earnings) Additional information: Bond coupon rate Bond yield to maturity Dividend, expected common Dividend, preferred Price, common Price, preferred Flotation cost, preferred Growth rate Corporate tax rate 13% 11% Debt Preferred stock Common equity (retained earnings) Weighted average cost of capital $ 7.00 $ 14.00 $ 70.00 $110.00 $ 2.50 30% 10% 5 85 Calculate the Hamilton Corp's weighted cost of each source of capital and the weighted average cost of capital. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost %
Macbeth Spot Removers is entirely equity financed with values as shown below: Data Number of shares 500 Price per share $ 10 Market value of shares $ 5,000 Market value of debt $ 5,000 $ 500 Interest at 4% Although it expects to have an income of $1,500 a year in perpetuity, this income is not certain. This table shows the return to stockholders under different assumptions about operating income. We assume no taxes. Outcomes Operating income ($) 500 1,000 Interest ($) 500 Equity earnings ($) 0 Earnings per share ($) Return on shares (%) 0 Ө 500 500 1.00 10. 1,500 500 1,000 2.00 20 2,000 500 1,500 3.00 30 Expected outcome Suppose that Macbeth Spot Removers issues only $3,000 of debt and uses the proceeds to repurchase 300 shares. The interest rate on the debt is 4%. a. Calculate the equity earnings, earnings per share, and return on shares for each operating income assumption. b. If the beta of Macbeth's assets is 0.85 and its debt is risk-free, what would be the beta of the equity…
Stock Expected Dividend Expected Capital Gain A $0 $10 B $5 $5 C $10 $0 A.) If each stock is priced at $175, what are the expected net precentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 21% (the effective tax rate on dividends received by corporations is 6.3%), and (iii) an individual with an effective tax rate of 10% on dividends and 5% on capital gains? B.) Suppose that investors pay 40% tax on dividends and 10% tax on capital gains. If stocks are priced to yield an after-tax return of 10%, what would A,B, and C each sell for? Assume the expected dividend is a level perpetuity.

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Total Value of Common Stocks (CS) Total Value of Preferred Stocks (PS) Total Value of Debt (D) O 19.79% O 14.97% 26.94% Cost of Equity $800,000 (common stocks) O none of the answers is correct 16.17% $200,000 Cost of Preferred stock Pre-tax Cost of Debt $400,000 Tax rate (t) 0.23 0.1 0.08 0.3