Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 18, Problem 7P
Acort Industries has 10 million shares outstanding and a current share price of $40 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has annual coupons with a coupon rate of 10%, and has a $100 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 6%. Acort has EBIT of $106 million, which is expected to remain constant each year. New capital expenditures are expected to equal
- a. Based on this information, estimate Acort’s WACC.
- b. What is Acort’s equity cost of capital?
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Acort Industries has
8
million shares outstanding and a current share price of
$43
per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has an annual coupon rate of
8%,
and has a
$106
million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at
4.8%.
Acort has EBIT of
$80
million, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal
$14
million per year, while no changes to net working capital are expected in the future. The corporate tax rate is
28%,
and Acort is expected to keep its debt-equity ratio constant in the future (by either issuing additional new debt or buying back some debt as time goes on).
a. Based on this information, estimate Acort's WACC.
b. What is Acort's equity cost of capital?
Question content area bottom
a. Based on this…
Acort Industries has 11 million shares outstanding and a current share price of $38 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has an annual coupon rate of 9%, and has a $115 million face value. The first of the
remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 5.4%. Acort has EBIT of $93 million, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal
$19 million per year, while no changes to net working capital are expected in the future. The corporate tax rate is 23%, and Acort is expected to keep its debt-equity ratio constant in the future (by either issuing additional new debt or buying back some debt as time goes on).
a. Based on this information, estimate Acort's WACC.
b. What is Acort's equity cost of capital?
a. Based on this information, estimate Acort's WACC.
The WACC is%.…
Sunburn Sunscreen has a zero coupon bond issue outstanding with a face value of
$11,000 that matures in one year. The current market value of the firm's assets is $13,100.
The standard deviation of the return on the firm's assets is 29 percent per year, and the
annual risk-free rate is 5 percent per year, compounded continuously. Based on the
Black-Scholes model, what is the market value of the firm's equity and debt? (Do not
round intermediate calculations and round your answers to 2 decimal places, e.g.,
32.16.)
Equity
Debt
Chapter 18 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 18.1 - What are the three methods we can use to include...Ch. 18.1 - Prob. 2CCCh. 18.2 - Prob. 1CCCh. 18.2 - Prob. 2CCCh. 18.3 - Prob. 1CCCh. 18.3 - Prob. 2CCCh. 18.4 - Prob. 1CCCh. 18.4 - Prob. 2CCCh. 18.5 - How do we estimate a projects unlevered cost of...Ch. 18.5 - What is the incremental debt associated with a...
Ch. 18.6 - Prob. 1CCCh. 18.6 - Prob. 2CCCh. 18.7 - How do we deal with issuance costs and security...Ch. 18.7 - Prob. 2CCCh. 18.8 - When a firm has pre-determined tax shields, how do...Ch. 18.8 - Prob. 2CCCh. 18 - Prob. 1PCh. 18 - Prob. 2PCh. 18 - In 2015, Intel Corporation had a market...Ch. 18 - Prob. 4PCh. 18 - Suppose Goodyear Tire and Rubber Company is...Ch. 18 - Suppose Alcatel-Lucent has an equity cost of...Ch. 18 - Acort Industries has 10 million shares outstanding...Ch. 18 - Prob. 8PCh. 18 - Prob. 9PCh. 18 - Consider Alcatel-Lucents project in Problem 6. a....Ch. 18 - Consider Alcatel-Lucents project in Problem 6. a....Ch. 18 - In year 1, AMC will earn 2000 before interest and...Ch. 18 - Prokter and Gramble (PKGR) has historically...Ch. 18 - Amarindo, Inc. (AMR), is a newly public firm with...Ch. 18 - Remex (RMX) currently has no debt in its capital...Ch. 18 - You are evaluating a project that requires an...Ch. 18 - Prob. 17PCh. 18 - You are on your way to an important budget...Ch. 18 - Your firm is considering building a 600 million...Ch. 18 - Prob. 20PCh. 18 - DFS Corporation is currently an all-equity firm,...Ch. 18 - Prob. 22PCh. 18 - Prob. 23PCh. 18 - Prob. 24PCh. 18 - XL Sports is expected to generate free cash flows...Ch. 18 - Propel Corporation plans to make a 50 million...Ch. 18 - Gartner Systems has no debt and an equity cost of...Ch. 18 - Revtek, Inc., has an equity cost of capital of 12%...
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