You are trying to calculate the WACC for two firms. Firm XiG is publicly traded and firm TanW is a private firm. You have collected all necessary information for your WACC calculation: In terms of liabilities, XiG has account payables of $400Million and a bank loan of $200Million. XiG also has cash holding of $300 Million. XiG is current trading at $520/share with 1 Million shares outstanding. XiG's returns move one to one with the stock market returns. XiG's average tax rate is 30% and marginal tax rate of 35 %. XiG is rated as Aa1 by Moody's and similar Aa1 rating firms have cost of debt of 2%. Risk free rate is 1%, market risk premium is 5%. TanW is in the same industry as XiG. After consulting with an industry expert, you are confident that TanW and XiG have roughly the same business risk. Currently, TanW has net debt to equity ratio of 2. TanW's average tax rate is 30% and marginal tax rate of 35 %. Its cost of debt is 3%. Now you proceed to calculate the WACC for both firms. 1)What is WACC for XiG? Enter the WACC for XiG:% (keep two decimal points ) 0.0/1.0 point (graded) Select the best answer from the following: 1.01 1.24 1.51 1.60 2) What is the asset beta for TanW?
You are trying to calculate the WACC for two firms. Firm XiG is publicly traded and firm TanW is a private firm. You have collected all necessary information for your WACC calculation: In terms of liabilities, XiG has account payables of $400Million and a bank loan of $200Million. XiG also has cash holding of $300 Million. XiG is current trading at $520/share with 1 Million shares outstanding. XiG's returns move one to one with the stock market returns. XiG's average tax rate is 30% and marginal tax rate of 35 %. XiG is rated as Aa1 by Moody's and similar Aa1 rating firms have cost of debt of 2%. Risk free rate is 1%, market risk premium is 5%. TanW is in the same industry as XiG. After consulting with an industry expert, you are confident that TanW and XiG have roughly the same business risk. Currently, TanW has net debt to equity ratio of 2. TanW's average tax rate is 30% and marginal tax rate of 35 %. Its cost of debt is 3%. Now you proceed to calculate the WACC for both firms. 1)What is WACC for XiG? Enter the WACC for XiG:% (keep two decimal points ) 0.0/1.0 point (graded) Select the best answer from the following: 1.01 1.24 1.51 1.60 2) What is the asset beta for TanW?
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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Transcribed Image Text:You are trying to calculate the WACC for two firms. Firm XiG is publicly traded and firm TanW is a private firm. You have collected all
necessary information for your WACC calculation:
In terms of liabilities, XiG has account payables of $400Million and a bank loan of $200Million. XiG also has cash holding of $300 Million.
XiG is current trading at $520/share with 1 Million shares outstanding. XiG's returns move one to one with the stock market returns.
XiG's average tax rate is 30% and marginal tax rate of 35 %. XiG is rated as Aa1 by Moody's and similar Aa1 rating firms have cost of
debt of 2%. Risk free rate is 1%, market risk premium is 5%.
TanW is in the same industry as XiG. After consulting with an industry expert, you are confident that TanW and XiG have roughly the
same business risk. Currently, TanW has net debt to equity ratio of 2. TanW's average tax rate is 30% and marginal tax rate of 35 %. Its
cost of debt is 3%.
Now you proceed to calculate the WACC for both firms. 1)What is WACC for XiG?
Enter the WACC for XiG:% (keep two decimal points
)
0.0/1.0 point (graded)
Select the best answer from the following:
1.01
1.24
1.51
1.60
2) What is the asset beta for TanW?
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