XYZ Corp. is currently an all-equity firm that has 250,000 shares of stock outstanding with a marketprice of $15 a share. The current cost of equity is 12.5 percent and the tax rate is 35 percent. The firmis considering adding $1.45 million of debt with a coupon rate of 8 percent to its capital structure. Thedebt will be sold at par value.What is the levered value of the equity in dollars? (Do not round intermediate calculations. Round onlythe final answer to two decimal places and enter it without the dollar symbol ($)).

Financial leverage is the practice of using borrowed funds (debt) to support the acquisition of…

Answered: XYZ Corp. is currently an all-equity…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 24P

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Pastel Interiors is currently an all-equity firm that has an annual projected BIT of $136,900. The current cost of equity is 16.5% and the tax rate is 20%. The firm is considering adding $118,000 of debt with a coupon rate of 7.5% to its capital structure. The debt will be sold at par value. What is the value of the unlevered firm (pre-debt)? A $763,570 B $663.758 C $730,133 (D) $696,945 ) $630,570
Machinal Corp. is an all-equity firm with 22,000 shares of stock outstanding with a market price of $27 a share. The current cost of equity is 12 percent, and the tax rate is 21 percent. The firm is considering adding $225,000 of debt with a coupon rate of 6.25 percent to its capital structure. The debt will sell at par. What will be the levered value of the equity? Also, briefly discuss the important concept of leverage to a company.
A firm is currently an all equity firm that has 510,000 shares of stock outstanding with a market price of $53.60 a share. The current cost of equity is 10.5 percent and the tax rate is 25 percent. The firm is considering adding $7.10million of debt with a coupon rate of 6 percent to its capital structure. The debt will be sold at par value. What is the levered value of the equity ?
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Hanover Tech is currently an all equity firm that has 600,000 shares of stock outstanding with a market price of $15.00 a share. The current cost of equity is 21 percent and the tax rate is 39 percent. The firm is considering permanently adding $5,850,000 of debt with a coupon rate of 11 percent to its capital structure. The debt will be sold at par value. What is the levered value of the equity? Round your answer to the nearest whole dollar, but don't include the $ sign. HINT: First get the value of the unlevered firm. Then calculate the value of the levered firm. The total value of any firm is the value of the debt plus the value of the equity. Numeric Response I
Manshukh
Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $31.00 per share. The firm's dividend (D0) is $3.00 with constant annual growth rate of 5.0%. If the firm issues new stock, the flotation costs would equal 10.0 percent of the stock's market value. The firm's marginal tax rate is 40%. What is the firm's cost of external equity?
A firm is currently an all equity firm that has an annualprojectedEBIT of $112,230. The current cost of equity is 16.5% and the tax rate is 20%. The firm is considering adding $118,000 of debt with a coupon rate of 7.5% to it's capital structure. The debt will be sold at par value. What is the value of the levered firm (with the debt)? A) 624, 520 B) 652,907 C) 567,745 D) 593, 133 E) 539,538
A firm is currently an all equity firm that Has an annual projected EBIT of$136,900. The current cost of equity is 16.5% and the tax rate is 20%. The firm is considering $118,000 of debt with a coupon rate of 7.5% to its capital structure. The debt will be sold at a par value. What is the value of the unleavened firm (pre-debt)? A) 730,133 B) 763,570 C) 663,758 D) 696,945 E) 630,570
ensen's, an all-equity firm, has a total market value of $548,000. The firm is thinking of adding $262,000 of debt at an interest rate of 6% and using the proceeds to buy back shares. What would be the firm's weighted average cost of capital after it adds the debt if the firm pays a tax rate of 40% and its unlevered cost of equity is 12.6%? Question 14 options: A) 15.25% B) 9.95% C) 16.23% D) 10.19% E) 10.57%
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The DEF Company is planning a $64 million expansion. The expansion is to be financed by selling $25.6 million in new debt and $38.4 million in new common stock. The before-tax required rate of return on debt is 0.086 and the required rate of return on equity is 0.125. If the company has a marginal tax rate of 0.26, what is the firm's cost of capital? Instruction: Type your answer as a decimal, and round to three decimal places

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