The pure play approach and its use. Introduction: The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity .

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Chapter 14.5, Problem 14.5BCQ

Summary Introduction

To discuss: The pure play approach and its use.

Introduction:

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

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California Construction Inc. is considering a 15 percent stock dividend. The capital accounts are: Common stock (6,000,000 shares at $10 par) ....... $60,000,000 Capital in excess of par* ...................................... 35,000,000 Retained earnings ................................................ 75,000,000 Net worth ......................................................... $170,000,000 *The increase in capital in excess of par as a result of a stock dividend is equal to the shares created times (Market price – Par value). The company’s stock is selling for $32 per share. The company had total earnings of $19,200,000 with 6,000,000 shares outstanding and earnings per share were $3.20. The firm has a P/E ratio of 10. a. Show the new capital accounts if a 15 percent stock dividend is given. b. What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant.) c. How many shares would an investor have if they originally had 80 shares? d. What…

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Terrill Machining Inc. sells machine parts to auto mechanics. It has not paid a dividend in many years but is currently contemplating some kind of dividend. The capital accounts for the firm are as follows: Common stock (2,400,000 shares at $5 par) . Capital in excess of par* ............................... Retained earnings ......................................... Net worth ................................................... $12,000,000 5,000,000 23,000,000 $40,000,000 *The increase in capital in excess of par as a result of a stock dividend is equal to the new shares created times (Market price – Par value). The company’s stock is selling for $20 per share. The company had total earnings of $4,800,000 during the year. With 2,400,000 shares outstanding, earnings per share were $2.00. The firm has a P/E ratio of 10. a. What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts. b. What adjustments would be made to…

Answer 2

Question

Chapter 14.5, Problem 14.5BCQ

Summary Introduction

To discuss: The pure play approach and its use.

Introduction:

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

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Answer 3

Question

Chapter 14.5, Problem 14.5BCQ

Summary Introduction

To discuss: The pure play approach and its use.

Introduction:

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

Expert Solution & Answer

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Answer 4

Question

Chapter 14.5, Problem 14.5BCQ

Summary Introduction

To discuss: The pure play approach and its use.

Introduction:

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

Expert Solution & Answer

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Answer 5

Chapter 14.5, Problem 14.5BCQ

Summary Introduction

To discuss: The pure play approach and its use.

Introduction:

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

Answer 6

Chapter 14.5, Problem 14.5BCQ

Summary Introduction

To discuss: The pure play approach and its use.

Introduction:

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

Answer 7

Chapter 14.5, Problem 14.5BCQ

Summary Introduction

To discuss: The pure play approach and its use.

Introduction:

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

Answer 8

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Answer 11

Ch. 14.1 - What is the primary determinant of the cost of...Ch. 14.1 - What is the relationship between the required...Ch. 14.2 - What do we mean when we say that a corporations...Ch. 14.2 - Prob. 14.2BCQ Ch. 14.3 - Why is the coupon rate a bad estimate of a firms...Ch. 14.3 - How can the cost of debt be calculated?Ch. 14.3 - How can the cost of preferred stock be calculated?Ch. 14.4 - Prob. 14.4ACQ Ch. 14.4 - Prob. 14.4BCQ Ch. 14.4 - Under what conditions is it correct to use the...

The pure play approach and its use. Introduction: The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity .

Solution Summary: The author explains the use of the weighted average cost of capital (WACC) for calculating the net present value based on other companies in the market running operations similar to the proposed project.

To discuss: The pure play approach and its use.

Introduction:

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

Want to see the full answer?

Chapter 14 Solutions

The pure play approach and its use. Introduction: The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity .

Solution Summary: The author explains the use of the weighted average cost of capital (WACC) for calculating the net present value based on other companies in the market running operations similar to the proposed project.

To discuss: The pure play approach and its use. Introduction: The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.

Want to see the full answer?

Chapter 14 Solutions

To discuss: The pure play approach and its use.

Introduction:

The weighted average cost of capital (WACC) refers to the weighted average of the cost of debt after taxes and the cost of equity.