You have been presented with the following information from Bogus Ltd.Source of CapitalBook ValueMarket ValueBefore-tax costLong-term debtR11 823 158R7 389 4748%Preference sharesR118 232R177 34713%Ordinary sharesR3 103 579R8 867 36817%TotalR15 044 969R16 434 189Assume Bogus Ltd has an average tax rate of 27%Required:a) Calculate the WACC based on the book value weights. Round off answers totwo decimal placesb) Compare the book value and market value method of calculating the WACC.

a) WACC based on Book Value WeightsStep 1: Calculate Book Value WeightsBook Value Weight (Long-term…

Answered: You have been presented with the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Assume ABC Corporation is a multinational company with the following financial information: Market value of equity (E): $500 million Market value of debt (D): $300 million Market value of preferred stock (PS): $50 million Cost of equity (Re): 10% Cost of debt (BTrd): 5% Corporate tax rate (Tc): 25% Cost of preferred stock ( Rps): 8% a. Calculate the WACC for ABC Corporation. Needs to be done in Excel
Give typing answer with explanation and conclusion Suppose Abraxas Corp. has an equity cost of capital of 8.2%, market capitalization of $11.37 billion, and an enterprise value of $17.12 billion. Suppose Abraxas's debt cost of capital is 5.6% and its marginal tax rate is 21%. What is Abraxas's WACC?
Suppose that TapDance, Inc.'s capital structure features 65 percent equity, 35 percent debt, and that its before-tax cost of debt is 10 percent, while its cost of equity is 15 percent. The appropriate weighted average tax rate is 21 percent. What will be TapDance's WACC? (Round your answer to 2 decimal places.) WACC %
Assume Skyler Industries has debt of $4,398,941with a cost of capital of 9% and equity of $5,435,265 with a cost of capital of 6.1%. What is Skyler’s weighted average cost of capital for debt? Round to the nearest hundredth, two decimal places and submit the answer in a percentage.
Give typing answer with explanation and conclusion If the company were to borrow more (or less), how would that impact the cost of debt and the WACC? Provide a specific assumed example. Weight of Equity 76.10% Weight of Debt 23.90% Cost of Equity 6.98% Cost of Debt 2.55% Tax Rate WACC 5.92%
An overview of a firm's cost of debt For which capital component must you make a tax adjustment when calculating a firm’s weighted average cost of capital (WACC)? Pick the correct choice. A- Preferred stock B- Equity C- Debt Three Waters Company (TWC) can borrow funds at an interest rate of 12.50% for a period of five years. Its marginal federal-plus-state tax rate is 45%. TWC’s after-tax cost of debt is_________% (rounded to two decimal places). At the present time, Three Waters Company (TWC) has 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,136.50 per bond, carry a coupon rate of 12%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 45%. If TWC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? Pick the correct choice. 5.60% 5.04%…
Suppose that TapDance, Inc.'s capital structure features 65 percent equity, 35 percent debt, and that its before-tax cost of debt is 8 percent, while its cost of equity is 13 percent. The appropriate weighted average tax rate is 21 percent. What will be TapDance's WACC? (Round your answer to 2 decimal places. Write your answer in percentage.)
Dickson, Inc., has a debt-equity ratio of 2.3. The firm's weighted average cost of capital is 11 percent and its pretax cost of debt is 8 percent. The tax rate is 23 percent. a. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What would the company's weighted average cost of capital be if the company's debt- equity ratio were .80 and 1.30? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of equity b. Unlevered cost of equity C. WACC if debt-equity ratio = 0.80 WACC if debt-equity ratio = 1.30 % % % % do do do do
Given the following information, compute the firm's WACC: • The firm's cost of equity = 16% • The firm's before-tax cost of long-term debt = 7% • The firm's capital structure is 35% long-term debt and 65% common equity • The firm's marginal tax rate = 25% O 10.25% O 12.85% 12.24% O 13.28%
Use the following information for Cronos Group, Inc. (CRON): EBIT / Revenue 25.50% Government Tax Rate 42.50% Revenue / Assets 1.95 times Current Ratio 3.15 times EBT / EBIT 0.80 times Assets / Equity 2.00 times Its interest coverage ratio is closest to: A. 2.50. B. 5.00. C. 7.15. D. 9.25.
A firm has two components in its capital structure, debt and equity. The after-tax cost of debt is 3% and the cost of equity is 11%. The proportion of equity in the capital structure is 75%. What is the firm's Weighted Average Cost of Capital? Select one: a. 9.47% b. 8.78% c. 9.00% d. 8.37%
If the state tax rate is 20% and the federal tax rate is 30%, what is the total effective tax rate? a. 34% b. 50% c. 44% d. 37% 2. Holding all other variables constant, which of the following would increase return on equity? An increase in _____________. a. the tax rate b. the equity ratio (equity/total assets) c. total assets d. total asset turnover

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS