Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 19, Problem 11P
Summary Introduction
To determine: The unlevered cost of capital.
Introduction:
The
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The single sum, present worth factor: a. Can be depicted as (1 + i)−n b. Can be depicted as (P|F i%,n) c. Is represented as PV using the Excel® financial function with −1 inserted for the fv parameter d. All of the above.
Formula for Weighted Average cost of capital is
WACC wdT(rdT) + wrP(rP) + wr$(rS)
WACC wd(rdT) + wPS(rPS) + w$(rS)
WACC = wdS(rdS) + wPS(rPS) + WS(rS)
WACC = wdP(rdP) + wPS(rPS) + w$(rS)
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Chapter 19 Solutions
Corporate Finance
Ch. 19.1 - Prob. 1CCCh. 19.1 - Prob. 2CCCh. 19.2 - Prob. 1CCCh. 19.2 - Prob. 2CCCh. 19.3 - What is a pro forma income statement?Ch. 19.3 - Prob. 2CCCh. 19.4 - Prob. 1CCCh. 19.4 - Prob. 2CCCh. 19.5 - Prob. 1CCCh. 19.5 - Prob. 2CC
Ch. 19.6 - Prob. 1CCCh. 19.6 - Prob. 2CCCh. 19 - Prob. 1PCh. 19 - Prob. 2PCh. 19 - Prob. 3PCh. 19 - Prob. 4PCh. 19 - Prob. 5PCh. 19 - Prob. 6PCh. 19 - Prob. 7PCh. 19 - Prob. 8PCh. 19 - Prob. 11PCh. 19 - Calculate Idekos unlevered cost of capital when...Ch. 19 - Prob. 13PCh. 19 - Prob. 14PCh. 19 - Prob. 15PCh. 19 - Prob. 16P
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- (b) Find the time path of capital K(t) given the following rates of net investment flow functions (i) I(t) = 10t12 + 5 K(0) = 50 (ii) I(t) = 18t5 - 2 K(0) = 24 (iii) I(t) = 30t4 K(0) = 35 (iv) I(1) = 23t K(0) =15 (c) For each of (i) to (iv) in b above, find the amount of capital formation over the time interval (2,5]arrow_forwardwhich of the following statement is true>? 1. return on equity is the ratio of total assets to total net income 2. one must know the discount rate to compute the npv of a project but one can compute the IRR without referring to the discount rate. 3. there will always be one IRR regardless of cash flows 4. one must know the discount rate to compute the IRR of a project but one can compute the NPV without referring to the discount rate 5. payback accounts for time value of moneyarrow_forwardAs the level of risk increases, the corresponding cost of capital (i.e. the return) must _____________________ . a) go up b) go down c) stay the same.arrow_forward
- The internal rate of return equals the rate that yields a profitability index of 1 for an investment. True O Falsearrow_forwardNonearrow_forwardConsider the following payoff table that represents the profits earned for each alternative (A, B, and C) under the states of nature S1, S2, and S3. Using the Laplace criterion, what would be the highest expected payoff? S1 S2 S3 A $100 145 120 B $75 125 110 C $95 85 60arrow_forward
- When we use the AFN equation to forecast the additional funds needed (AFN), we are implicitly assuming that all financial ratios are constant. A. True B. Falsearrow_forwardWhich of the following statements is false? (You may select more than one answer.)a. The payback period increases as the cost of capital decreases.b. The simple rate of return will be the same for two alternatives that have identicalcash flow patterns even if the pattern of accounting net operating income differsbetween the alternatives.c. The internal rate of return will be higher than the cost of capital for projects thathave positive net present values.d. If two alternatives have the same present value of cash inflows, the alternative thatrequires the higher investment will have the higher project profitability index.arrow_forwardThe weights used in calculating the weighted average cost of capital should be based on ________. a book values b estimated future values c market valuesarrow_forward
- Use the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 1.63 when the risk-free rate and market return are 5% and 13%, respectively. b. Find the risk-free rate for a firm witha required return of 14.363% and a beta of 1.07 when the market return is 14%. C. Find the market return for an asset with a required return of 9.045% and a beta of 1.57 when the risk-free rate is 3%. d. Find the beta for an asset with a required return of 10.255% when the risk-free rate and market return are 6% and 9.7%, respectively. a. The required return for an asset with a beta of 1.63 when the risk-free rate and market return are 5% and 13%, respectively, is %.arrow_forwardWhen estimating a weighted average cost of capital, a firm can use either book values or market values for estimating the value of the component sources of capital. Where would you find book values, and what value do they represent? How would you calculate market values? In general, would you prefer to use market or book values for estimating the WACC? Under what circumstances would you use book values?arrow_forwardGive typing answer with explanation and conclusionarrow_forward
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