Q: Starset, Incorporated, has a target debt-equity ratio of 0.76. Its WACC is 10.5 percent, and the tax…
A: Pretax cost of debt can be calculated through the WACC equation and debt-equity ratio. Here…
Q: XYZ Transcontinental currently has no debt and an equity cost of capital of 16%. Suppose that XYZ…
A: Formula WACC = THE RE DEBT VALUE RATIO × ( COST OF DEBT × TAX RATE)
Q: M&M Corporation has a WACC of 20 percent. Its cost of debt is 13 percent. If habitat’s debt-equity…
A: Source of raising capital include: Debt capital Equity capital Public deposit Retained earnings…
Q: Arnell Industries has 5.5 million in permanent debt outstanding. The firm will pay interest only on…
A: Tax shield refers to the amount of money that the company saves on taxes by paying out the interest…
Q: The Beta Corporation has an optimal debt ratio of 40 percent. Its cost of equity capital is 11…
A: WACC is the weighted average cost of capital. It's the weighted cost of capital of each source of…
Q: A firm has EBIT of $30 million. It has debt of $100 million and the cost of debt is 7%. Its…
A: The value of unlevered firm can be calculated by using equation below.Unlevered firm value…
Q: Antwerp Co. has a debt-to-equity ratio of 1.4, a corporate tax rate of 30%, pays 4% interest on its…
A: Data given: Debt-to-equity ratio = 1.4 i.e., D/E= 1.4 Working Note #1 D/E= 1.4 1+D/E = 1+1.4…
Q: Given the following information, leverage will add how much value to the unlevered firm per dollar…
A: Corporate tax rate(TC): 35%Personal tax rate on income from bonds(Tb): 25%Personal tax rate on…
Q: Suppose there are perfect capital markets with taxes. Investors expect a company to have $120…
A: The expected earning for the investor is given as $120. The tax rate is 25%The market value of the…
Q: The Redwood Company is financed entirely with equity. The company is considering a loan of $20…
A: Amount of Loan is 20 millionCost of Loan is 8%Time Period of Loan is 2 yearsTax Rate is 24%
Q: Theresa’s belongs to Harvester, which has expected earnings before interest and tax (EBIT) of…
A: The question is related to Capital Structure. MM Approach corporate taxes:- MM later recognizes the…
Q: Laurel, Inc., has debt outstanding with a coupon rate of 5.8% and a yield to maturity of 7.1%. Its…
A: The objective of the question is to calculate the effective after-tax cost of debt for Laurel, Inc.…
Q: Consider the case of two firms, ABC which is an unlevered firm and XYZ which is a levered firm. The…
A: (i) Calculation of cost of capital of each firm: *cost of capital is the firms overall cost of…
Q: Suppose you sell a fixed asset for $111,000 when its book value is $131,000. If your company's…
A: Given information: Book Value = $131,000 Sale value = $111,000 Tax rate = 40% or 0.40 Required:…
Q: There will likely be a difference between your calculation of the Company’s intrinsic value and its…
A: Intrinsic value is the true or inherent value of a company. It is a fundamental value which is…
Q: If Sudar Products Bhd follows the residual distributions model:(ii) How much retained earnings and…
A: Residual distribution model is the method in which dividend is paid after the capital repayment has…
Q: Walsall Albion Co. currently has a debt-to-equity ratio of 0.35 and a total market value of €200…
A: A tax shield refers to a reduction in taxable income through various deductions. The value of the…
Q: TnT has $16billion in assets, and its tax rate is 40%. Its BEP ratio is 10% and its ROA is 5%.…
A: TIE refers to times-interest-earned ratio. TIE ratio measures the ability of a firm to pay off its…
Q: Suppose Alcatel-Lucent has an equity cost of capital of 10.1%, market capitalization of $11.52…
A: Capital budgeting is the procedure of analyzing potential projects and allocating the company's…
Q: Suppose you sell a fixed asset for $10,000 when its book value is $2,000. If your company's marginal…
A: Sale Price = $10,000 = SP Book Value = BV = $2,000 Tax Rate = t = 21% After-Tax Cash Flow from Sale…
Q: Black Inc. is a manufacturing company with a cost of debt of 6.5% . The company is financed equally…
A: We need to use Modigliani and Miller proposition II with taxes approach to calculate value of…
Q: Suppose you sell a fixed asset for $126,000 when it's book value is $157,000. If your company's…
A: The computation of after tax cash flow is as follows:Hence, the after tax cash flow is $136850.
Q: % to % per year. The tax advantage reduces the WACC from
A: In this we have to calculate weighted average cost of capital before tax and after tax and calculate…
Q: The Redwood Company is financed entirely with equity. The company is considering a loan of $20…
A: To calculate the increase in firm value attributed to the interest tax shield of the loan, we can…
Q: Sandhill Co. has a capital structure, based on current market values, that consists of 35 percent…
A: Weight Average Cost Of capital The weighted normal expense of capital (WACC) is a computation…
Q: Note: Assume that the firm will always be able to utilize its full interest tax shield.…
A: A firm's capital structure is made up of two components, i.e., equity and debt. The equity capital…
Q: NoNuns Cos. has a 25 percent tax rate and has $302.40 million in assets, currently financed entirely…
A: Expected EPS is caluclated as the sum of the product of probability percentage and EPS in each stae.…
Q: GTB, Incorporated has a 21 percent tax rate and has $100 million in assets, currently financed…
A: EPS is earning per share and that profit earned for each shareholder by the company in the current…
Q: Suppose that TapDance, Incorporated's capital structure features 60 percent equity, 40 percent debt,…
A: WACC means Weighted Average Cost of Capital. It represents the overall cost of capital by taking…
Q: The after-tax cost of debt using the bond's yield to maturity (YTM) is %. (Round to two decimal…
A: Cost of Debt: It represents the cost of raising debt capital from the debt holders. The debt…
Q: You are evaluating a project that will require an investment of $18 million that will be depreciated…
A: When the business tax rate rises, several things can affect project evaluation: a. Would this…
Q: Your company has a pre-tax cost of debt of 6%. You anticipate the corporate tax rate will go from…
A: A company pays interest on its debt instruments. This interest is tax deductible. Hence in finance…
Q: Majan Mining has found that its cost of common equity capital is 15 percent and its cost of debt…
A: The cost of capital is the cost that is incurred by a corporation on the acquisition of capital from…
Q: Suppose you sell a fixed asset for $90,000 when its book value is $95,000. If your company's…
A: Here, Sale value = $90,000 Book value = $95,000 Tax rate = 21% To Find: After-tax cash flow of this…
Q: Golden Gate Construction Associates, a real estate developer and building contractor in San…
A: WACC or the weighted average cost of capital is the blended cost of capital.It takes into…
Q: Suppose that B2B, Incorporated has a capital structure of 37 percent equity, 17 percent preferred…
A: Step 1:We have to calculate the weighted average cost of capital (WACC). The formula for the…
Q: Suppose that TipsNToes, Inc.'s capital structure features 75 percent common equity, 25 percent debt,…
A: Equity ratio = 75% Debt ratio = 25% Cost of equity = 12% Before tax cost of debt = 10% Tax rate =…
Q: Suppose a firm has $10 million in debt that it expects to hold in perpetuity. It the interest rate…
A: The following information has bee provided in the question: Amount of debt= $10 million Interest…
Q: Spot Company’s balance sheet consists of the following: $790 million and $230 million. Its current…
A: Weighted average cost of capital is the average cost of using the finance by the company. Finances…
Q: Without leverage, Impi Corporation will have net income next year of $7.5 million. If Impi's…
A: Earnings before interest and taxes can be computed after deducting the cost of goods sold from the…
Q: Market Debt-to- Value Ratio (WD) 0.00 0.20 0.40 0.60 0.80 Market Equity-to- Value Ratio (WE) 1.00…
A: Cost of capital:The cost of capital refers to the expenses a company incurs in order to finance…
Q: Laurel, Inc., has debt outstanding with a coupon rate of 5.8%and a yield to maturity of 7.1%.Its…
A: For the calculation of effective after tax cost of debt we will use the below formula After tax…
Q: Suppose that TipsNToes, Inc.'s capital structure features 55 percent common equity, 45 percent debt…
A: Weight of common equity = 0.55 Weight of debt = 0.45 Cost of equity = 0.14 Before tax cost of debt =…
Q: Suppose you sell a fixed asset for $312,000 when its book value is $102,000. If your company’s…
A: After-tax cash flow is the selling price less the tax paid on capital gain. Capital gain is the…
Q: capital 10%. (a) If Acorn is unlevered, what is the value of Acorn's equity? (b) What is the…
A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…
Q: Tool Manufacturing has an expected EBIT of $81,000 in perpetuity and a tax rate of 24 percent. The…
A: Modigliani-Miller Proposition I (MM Proposition I) is a fundamental concept in corporate finance,…
Suppose that MNINK industries' capital structure features 63 percent equity, 7 percent
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- Simple Tech Inc is an Australian company operating in a pure imputation tax system. It is currently financed entirely (100%) by equity and has a beta of 0.8. After examining its capital structure, Simple Tech finds that the optimal capital structure can be achieved at D/E ratio of 0.4. The before- tax cost of debt capital for Simple Tech at the optimal capital structure is 10% p.a. The risk-free rate and market risk premium are 5% p.a. and 7% p.a., respectively. If the statutory corporate tax rate is 30%, which of the following is closest to the cost of equity at the optimal capital structure (using the approach covered in the lecture)? O 12.03% p.a. 12.84% p.a. 11.69% p.a. 10.60% p.a. 12.17% p.a.Suppose Essen Corp has the following weights and costs. What is the WACC if the company has a 21% tax rate? Component Common equity Debt (before tax) R 11.5% 0.8 0.2 7.5% 10.39% ()8.71% ()6.25% 9.50% 10.70% Page 29 of 30 Previous Page Next Pageces NoNuns Companies has a 21 percent tax rate and has $350 million in assets, currently financed entirely with equity. Equity is worth $37 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Probability of state Expected EBIT in state Recession 0.25 $ 5 million EBIT Average 0.55 $ 10 million Boom 0.20 $ 17 million The firm is considering switching to a 20-percent-debt capital structure, and has determined that it would have to pay an 8 percent yield on perpetual debt in either event. What will be the break-even level of EBIT? Note: Round intermediate calculations. Enter your answer in dollars not millions and round your final answer to the nearest whole dollar amount.
- The effect of tax rate on WACC K. Bell Jewelers wishes to explore the effect on its cost of capital of the rale at which the compary pays taxes. The firm wishes to maintain a capital structure of40%debt,10%preferred stock,and50%common stock. The cost of financing with retaked eamings is18%, the cost of prefered stock finaneing is 9%, and the before-tax cost of debt financing is7%. Calculate the weighted average cost of capial (WACC) given a tax rate of 35%. The firmis WACC is ?%. (Round to two docinal places)14Suppose that Tap Dance, Incorporated's capital structure features 60 percent equity, 40 percent debt, and that its before-tax cost of debt is 7 percent, while its cost of equity is 12 percent. The appropriate weighted average tax rate is 21 percent and TapDance estimates it cannot make any use of the interest tax shield in the foreseeable future. What will be TapDance's WACC? Note: Round your answer to 2 decimal places.
- B.F. Pierce & Company is considering changing its capital structure. The company currently has no debt and no preferred stock, but it would like to add some debt to take advantage of low interest rates and the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: 8.66% 9.21% 8.83% Market Debt-to- Value Ratio 9.07% (WD) 0.00 0.20 0.40 0.60 0.80 Market Equity-to- Value Ratio (WE) 1.00 0.80 0.60 0.40 0.20 Market Debt-to- Equity Ratio (D/E) 0.00 0.25 0.67 1.50 4.00 Before-Tax Cost of Debt (rD) 5.00% The company uses the CAPM to estimate its cost of common equity. Currently the risk-free rate is 4%, the market risk premium is 6%, and the company's tax rate is 25%. The company estimates that its beta now (which is unlevered because it currently has no debt) is 0.8. Based on this information, what is the firm's weighted average cost of capital at its optimal capital structure? 6.00% 7.00% 8.00% 9.00%ManshukSuppose you sell a fixed asset for $212,000 when its book value is $112,000. If your company’s marginal tax rate is 30 percent, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?
- Suppose Goodyear Tire and Rubber Company has an equity cost of capital of 7.9%, a debt cost of capital of 6.4%, a marginal corporate tax rate of 21%, and a debt-equity ratio of 2.7. Assume that Goodyear maintains a constant debt-equity ratio. a. What is Goodyear's WACC? b. What is Goodyear's unlevered cost of capital? c. Explain, intuitively, why Goodyear's unlevered cost of capital is less than its equity cost of capital and higher than its WACC. a. What is Goodyear's WACC? The WACC is %. (Round to two decimal places.)New Energy’s capital structure today is $1,347 million in Long Term Debt and $1,655 million in Common Equity. If its debt were issued today, New Energy would pay an interest rate of 8.2%/year (before tax). New Energy’s Cost of Equity is estimated to be 12%/year. Given a tax rate of 30%, what is New Energy’s Weighted Average Cost of Capital (WACC)? (Your answer should be a % carried to 2 places.)Suppose you sell a fixed asset for $115,000 when it's book value is $135,000. If your company's marginal tax rate is 21%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?