VanMannen Foundations, Inc. (VF) VanMannen Foundations, Inc. (VF) is a zero-growth company that currently has zero debt, and it has the data shown below. EBIT = $80,000 Growth = 0% Orig cost of equity, rs = 10.0% No. of shares = 10,000 Price per share = $60.00 Tax rate = 25% Refer to the data for VanMannen Foundations, Inc. (VF). Now the company is considering using some debt, moving to the market value capital structure indicated below. The money raised would be used to repurchase stock. It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise somewhat, as indicated below. If this plan were carried out, what would be VF's new WACC and its new value of operations? New interest rate = rd = 6.00% New cost of equity = rs = 10.75% New Debt/Value = wd = 20% New Equity/Value = ws = 80% Whic one is correct? WACC Value a. 10.10% $657,095 b. 9.80% $644,211 c. 9.50% $631,579 d. 10.40% $670,237 e. 10.70% $683,641
VanMannen Foundations, Inc. (VF) VanMannen Foundations, Inc. (VF) is a zero-growth company that currently has zero debt, and it has the data shown below. EBIT = $80,000 Growth = 0% Orig cost of equity, rs = 10.0% No. of shares = 10,000 Price per share = $60.00 Tax rate = 25% Refer to the data for VanMannen Foundations, Inc. (VF). Now the company is considering using some debt, moving to the market value capital structure indicated below. The money raised would be used to repurchase stock. It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise somewhat, as indicated below. If this plan were carried out, what would be VF's new WACC and its new value of operations? New interest rate = rd = 6.00% New cost of equity = rs = 10.75% New Debt/Value = wd = 20% New Equity/Value = ws = 80% Whic one is correct? WACC Value a. 10.10% $657,095 b. 9.80% $644,211 c. 9.50% $631,579 d. 10.40% $670,237 e. 10.70% $683,641
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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Question
VanMannen Foundations, Inc. (VF)
VanMannen Foundations, Inc. (VF) is a zero-growth company that currently has zero debt, and it has the data shown below.
| EBIT = |
$80,000 |
| Growth = |
0% |
| Orig |
10.0% |
| No. of shares = | 10,000 |
| Price per share = | $60.00 |
| Tax rate = |
25% |
Refer to the data for VanMannen Foundations, Inc. (VF). Now the company is considering using some debt, moving to the market value capital structure indicated below. The money raised would be used to repurchase stock. It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise somewhat, as indicated below. If this plan were carried out, what would be VF's new WACC and its new value of operations?
| New interest rate = rd = | 6.00% |
| New cost of equity = rs = | 10.75% |
| New Debt/Value = wd = | 20% |
| New Equity/Value = ws = | 80% |
Whic one is correct?
WACC Value
| a. |
10.10% $657,095
|
|
| b. |
9.80% $644,211
|
|
| c. |
9.50% $631,579
|
|
| d. |
10.40% $670,237
|
|
| e. |
10.70% $683,641
|
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