Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133507690
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Chapter 13, Problem 13.4WUE

Parker Investments has EBIT of $20,000, interest expense of $3,000, and preferred dividends of $4,000. If it pays taxes at a rate of 38%, what is Parker’s degree of financial leverage (DFL) at a base level of EBIT of $20,000?

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Chamin, Inc. has earnings before interest and taxes (EBIT) of $375,000. Chamin has interest expense of $75,000; it must pay preferred dividends of $6,000 and it has a tax rate of 40 percent. Given a base EBIT level of $375,000, what is the firm's degree of financial leverage?  Use the formula that includes the preferred dividends in the calculation.
Planet Express has liabilities of $400 and assets of $1000. The average YTM on its debt is 10% and the tax rate is 20%. The company has announced $1 annual dividends in perpetuity and has a stock price of $5. What is the company’s weighted average cost of capital (WACC)? Why is the tax rate included in the WACC? How can the WACC be used to evaluate potential investments?
Company X has debt and equity as sources of funds. Company X has market value of debt as $150,000 and book value of debt as $80,000. The company has book value of equity as $100,000 and market value of equity as $125,000. The cost of debt is 8.25% and cost of equity is 9.57%. the tax rate is 38%. What is the Weighted Average Cost of Capital (WACC)? a. 7.59% b. 7.78% c. 7.14% d. 7.68%
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What is WACC-Weighted average cost of capital; Author: Learn to invest;https://www.youtube.com/watch?v=0inqw9cCJnM;License: Standard YouTube License, CC-BY