A financial analyst is in the process of estimating the cost of capital of Gewicht GmbH. The following information is obtained from the company web pages. • Market value of debt: $50 million • Market value of equity: $600 million Table 1. Primary competitors and capital structures (in millions) Market value of Market value of Competitor debt equity A $25 $50 $101 $190 C $40 $60 QUESTIONS: What are Gewicht GmbH target capital structure (DV and E/V) if the analyst uses current capital structure? dnumborto four decimalolas to reparheresults Options: 0.4545 0.5454 0.4213 0.4921
Q: The scenario is designed to help you determine and evaluate the payment amount of a car loan and a m...
A: Household income = $36,000 per year or Monthly Income = $3,000
Q: Find the mean of Terry's stock, giving the following information? Year Return 2011 22% 2012 -8% 2013...
A: Here, To Find: Mean =?
Q: Suppose à priñčipal Generate a table of the corresponding effective interest rates. (ruond to 3 deci...
A: Effective interest rate is the interest rate considering the impact of the compounding on the intere...
Q: A private rank and file employee working in a remote tower station of Convulge Internet Company rece...
A: 13th month pay 72,000.00 Performance bonus 15,000.00...
Q: Machine M Machine N $ 25,000 5 years $3,000 $10,000 $3,500 Initial Cost $25,000 4 years $4,000 $11,0...
A: Present worth is the present value of all cost and revenue and cash flow from the machine considerin...
Q: Seagated Corp Sdn Bhd is considering two projects of machinery that perform the same task. The requi...
A: Net present value is the difference between Present Value of cash Inflows and Initial Investment. H...
Q: The Global Growth Fund is a load fund with a 5 percent front load fee. It started the year with a ne...
A: Start Net Asset Value (NAV) = $16.60 End Net Asset Value (NAV) = $18.25 Fund distributed = $1.25 Fro...
Q: On January 1, 2020, Janet buys a bond for P10,000 that will make coupon payments of P600 after each ...
A: Annual coupon (C) = P 600 Number of coupons remaining (n) = 1 r = 4% Face value (F) = P 10000
Q: 1. The New York Stock Exchange is primarily a. A secondary market. b. An organized auction market. c...
A: A secondary market is a market where shares of company are traded among the sellers and prospective ...
Q: Question 7 What is the other name for fim-specific risk? O Systematic risk O Market risk O Micro-cap...
A: Risk includes the likelihood of losing some or all of the original investment. Business risks refer ...
Q: Manly Company issued $400,000 of 9%, 10-year bonds at 102. Interest is paid annually, and the straig...
A: Bonds are defined as financial instruments used by companies to raise additional funds from the mark...
Q: It is April, and Hans Anderson is planting his barley crop near Plunkett, Saskatchewan. He is concer...
A: In the given question we are given with the particulars about a barley crop of Hans Anderson. Given...
Q: Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an av...
A: Risk can be compared on the basis of coefficient of variation. Higher the coefficient of variation, ...
Q: what is the average EAR on an investment that earns 6% APR with monthly compounding for 5 years, fol...
A: The EAR is calculated for the compounded interest which shows the single rate that will provide same...
Q: A stock has a beta of 4.6. Knowing that the rish O 46% 49% O 32.2% O None of the listed items is cor...
A: The required return on the stock represents the total return earned on the stock. This return is con...
Q: dollars/year for the next 6 years. If the interest rate is 3.9%/year compounded continuously, find t...
A: Future Value of Annuity: It represents the future worth of the present stream of annuity cash flows...
Q: An item will need replacing in 6 years from now at a cost of ₱128,000.00. How much should the owner ...
A: Solution:- When an equal amount is saved each period at beginning of each period, it is called annui...
Q: A 5-year project will require an investment of $100 million. This comprises of plant and machinery w...
A: Initial Investment is $100million Net Working Capital is $20 million out of $100million Cost of mach...
Q: Referring to the table below is the information about three RM1000 par value bonds and each of which...
A: Given Three bonds Bond 1, Bond 2 and Bond 3.
Q: Use the following table of spot rates: Years to Maturity Annual Effective Spot Rate 1 3.00% 2 3.60% ...
A: Interest rate swap It is a derivative in which two parties agree to exchange the future interest pay...
Q: A man invests in a project that requires a fixed capital of P 2.5 M with no salvage, and life of 12 ...
A: The period in which the initial investment is recovered is known as the pay-out period. It is calcul...
Q: The current risk-free rate is 3 percent and the market risk premium is 5 percent. You are trying to ...
A: Fist we need to calculate expected rate of return by using CAPM equation rs =Rf +Beta(Rm-Rf) where r...
Q: An FSA can be used to pay for over-the-counter as well as prescription medications. Kendra bought th...
A: FSA or Flexible spending account is an employer sponsored healthcare benefit. This account allows t...
Q: 3. Robbins Inc. is considering a project that has the following cash flows and cost capital (r) data...
A: Net present value is the sum of the present values of net of all future cash outflows and inflows di...
Q: The expected value of a normal distribution of prices for a stock is $71. If you are 99 percent sure...
A: The normal distribution is assumed than it follows the probability of stock prices can be found from...
Q: The following are budgeted data: January February March 15,000 Sales in units. Production in units. ...
A: Solution : Total No. of Pound Required in month of Feb : Production in February * One Po...
Q: You have $10,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of...
A: Amount available to invest = $ 10000Return of X = 12.4%Return of Y = 10.1% Desired return from portf...
Q: necessary, refer to the list of financial formulas. (a) Assuming no withdrawals are made, how much m...
A: Future value of investment is the the principal amount deposited and interest accumulated over the p...
Q: •Assume that you have saved money for a down payment on your dream house, but you still need to borr...
A: a) Given that: Loan Amount=Php500000= PV of annuity Year of mortgage=5 Year= 60 months Annual Rate (...
Q: Compute the cost of equity for this project 2. Compute the relevant cost of debt for this proje...
A: Cost of Equity: It represents the cost of raising equity capital from equity investors. The equity ...
Q: David is planning to buy a new car. Since David has not save any money, he plans to take out a loan ...
A: Present Value of Ordinary Annuity refers to a concept that determines the value of cash flows at pre...
Q: You work for a nuclear research laboratory that is contemplating leasing a diagnostic The scanner co...
A: Net advantage of leasing: The entire monetary savings that may be realized if a person or a corpora...
Q: Netflix, Inc. has a beta of 3.61. If the market return is expected to be 13 percent and the risk-fre...
A: Market return is expected = 13% The risk-free rate = 3%
Q: Commercial Bank of Windhoek has credited Upington Solar Corporation with R550m, with a maturity of t...
A: Data given:: Loan amount = R 550 m Expected loss = R 16.5 m Recovery rate = 23% Required:: Probabi...
Q: A project requires an initial outlay of $80000 and produces a return of $20000 at the end of year 1,...
A: Solution:- Internal Rate of Return (IRR) means the rate at return the project is yielding. At IRR, N...
Q: down payment.
A: A home loan refers to the amount borrowed from financial institutions or banks for the purpose of bu...
Q: Westco Co. issued 15-year bonds a year ago at a coupon rate of 5.4 percent. The bonds make semiannua...
A: A Bond refers to an instrument that represents the loan being made by the investor to the company an...
Q: . Compute the cost of equity for this project 2. Compute the relevant cost of debt for this project...
A: WACC: It represents the average cost of capital for the company. It is computed by adding the indiv...
Q: Wendy has $23,000.00 invested in a bank that pays 11.75% annually. How long will it take for her fun...
A: Principal (P) = $23,000 Amount (A) = $69,000 ( Triple) Annual interest rate = 11.75% The equation t...
Q: (Bond valuation relationships) A bond of Telink Corporation pays $120 in annual interest, with a $1,...
A: a) Coupon (C) = $120 Par value (P) = $1000 n = 10 years r = 10%
Q: Maria loaned an amount of 100,000 in payable in 15 equals installments. The first payment was made a...
A: The present value of loan is equal to the present value of all the future installments discounted at...
Q: If $800 is borrowed and the interest after 6 months is $44, what is the annual interest rate for a s...
A: Principal Amount = $800 Time Period = 6 Months Interest = $44
Q: Cal withdrew $800 from his HSA to pay for non-medical expenses. He had to pay 25% income tax plus a ...
A: Withdrawal Amount = $800 Income Tax = 25% Penalty = 10%
Q: Paccar’s current stock price is $48.20 and it is likely to pay a $0.80 dividend next year. Since ana...
A: Required return can be calculated as: = (Dividend to be paid next year / current stock price) + grow...
Q: According to the promissory note below, answer the following questions (Refer to the pic attached) ...
A: Maker is the person who is supposed to pay the amount and Payee is the person to whom amount is to b...
Q: How much will you have saved after 6 years by contributing 1,200 at the end of each year if you expe...
A: Future Value of Ordinary Annuity refers to the concept which determines the sum total of all the cas...
Q: do you think that the collaboration between Central Banks and Government creates challenges for supp...
A: If a country's economy were a human body, the central bank would be its heart. And, just as the hear...
Q: A new electric saw for cutting small pieces of lumber in a furniture manufacturing plant has a cost...
A: Modified Accelerated cost recovery system (MACRS) Modified Accelerated cost recovery system (MACRS) ...
Q: Mill A Mill B Initial Cost $7,800 $14,400 $2,700 $1,200 $540 Salvage Value Annual Operating Cost $17...
A: it is given that : A: Initial cost - $7800 Salvage value- 0 Annual cost – 1745+960= 2705 Time – 12 y...
Q: A 5-year project will require an investment of $100 million. This comprises of plant and machinery w...
A: Net present value is the sum of the present values of net of all future cash outflows and inflows di...
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- Question Robinson plc have decided that in order to make better investment appraisal decisions they need to re-calculate the company's cost of capital. The following information is extracted from the company's statement of financial position (balance sheet): £ (millions) Fixed assets: 890 Current assets: 370 Current liabilities: (220) Non-current liabilities: 5% Bonds (£100 par) redeemable in 7 years (160) 4% Irredeemable Bonds (£100 par) (190) Bank Loan (120) Share capital and reserves Ordinary Shares (nominal value 50p)___ 180 7% Preference shares (£1 nominal value) 100 Reserves 290 Additional information: The risk-free rate of return on short-dated government bonds is currently 3%. The market risk premium has been estimated at 7% and the company's beta is 1.5. The company's ordinary share price is £3 and the preference share price is £0.8. The irredeemable bonds are currently trading at a 5% discount to par value and the redeemable bonds are currently trading at £105. The rate of…CALCULATING 3Ms COST OF CAPITAL In this chapter, we described how to estimate a companys WACC, which is the weighted average of its costs of debt, preferred stock, and common equity. Most of the data we need to do this can be found from various data sources on the Internet. Here we walk through the steps used to calculate Minnesota Mining Manufacturings (MMM) WACC. 3. Next, we need to calculate MMMs cost of debt. We can use different approaches to estimate it. One approach is to take the companys interest expense and divide it by total debt (which is the sum of short-term debt and long-term debt). This approach only works if the historical cost of debt equals the yield to maturity in todays market (i.e., if MMMs outstanding bonds are trading at close to par). This approach may produce misleading estimates in years in which MMM issues a significant amount of new debt. For example, if a company issues a great deal of debt at the end of the year, the full amount of debt will appear on the year-end balance sheet, yet we still may not see a sharp increase in annual interest expense because the debt was outstanding for only a small portion of the entire year. When this situation occurs, the estimated cost of debt will likely understate the true cost of debt. Another approach is to try to find this number in the notes to the companys annual report by accessing the companys home page and its Investor Relations section. Alternatively, you can go to other external sources, such as bondsonline.com, for corporate bond spreads, which can be used to find estimates of the cost of debt. Remember that you need the after-tax cost of debt to calculate a firms WACC, so you will need MMMs tax rate (which has averaged around 30% in recent years). What is your estimate of MMMs after-tax cost of debt?2:01 mylab.pearson.com/S Data table (Related to Checkpoint 4.2) (Capital structure analysis) The liabilities and owners' equity for Campbell Industries is found here: Accounts payable Notes payable Current liabilities Long-term debt Common equity a. What percentage of the firm's assets does the firm finance using debt (liabilities)? b. If Campbell were to purchase a new warehouse for $1.2 million and finance it entirely with long-term debt, what would be the firm's new debt ratio? $514,000 $255,000 $769,000 $1,294,000 $5,326,000 Total liabilities and equity $7,389,000 Click on the icon in order to copy its contents into a spreadsheet.) a. What percentage of the firm's assets does the firm finance using debt (liabilities)? The fraction of the firm's assets that the firm finances using debt is 27.21 %. (Round to one decimal place.) Print ||| = 1 LTE2.II 4G Done + @ O I 72% 2 : X
- Consider the following data for the firms Acme and Apex: Equity ($ million) Debt ($ million) ROC Cost of Capital Acme 290 145 17% 9% Apex 1,450 483 15% 10% a. Calculate the economic value added for Acme and Apex (round to 2 decimal places). Economic value added for Acme $? million Economic value added for Apex $? million b. Calculate the economic value added per dollar of invested capital for Acme and Apex (round to 2 decimal places)? Economic value added for Acme per dollar Economic value added for Apex per dollar(Capital structure analysis) The liabilities and owners' equity for Campbell Industries is found here: LOADING... . a. What percentage of the firm's assets does the firm finance using debt (liabilities)? b. If Campbell were to purchase a new warehouse for $1.1 million and finance it entirely with long-term debt, what would be the firm's new debt ratio? Accounts payable $519,000 Notes payable $248,000 Current liabilities $767,000 Long-term debt $1,101,000 Common equity $4,647,000 Total liabilities and equity $6,515,000Balance Sheet You are evaluating the balance sheet for Cypress Corporation. From the balance sheet you find the following balances: Cash and marketable securities = $670,000, Accounts receivable = $870,000, Inventory = $570,000, Accrued wages and taxes = $111,000, Accounts payable = $207,000, and Notes payable = $1,070,000. What is Cypress's net working capital? Multiple Choice $1,388,000 O $2,110,000 $722,000 O $3,498,000
- Consider the following data for the firms Acme and Apex: Acme Apex Required: Equity Debt ($ million) ($ million) 210 1,050 105 350 ROC Cost of Capital (*) (%) 17% 9% 15% 10% a-1. Calculate the economic value added for Acme and Apex. a-2. Which firm has the higher economic value added? b-1. Calculate the economic value added per dollar of invested capital for Acme and Apex. b-2. Which firm has the higher economic value added per dollar of invested capital? Answer is not complete. Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B1 Required B2 Calculate the economic value added for Acme and Apex. Note: Enter your answers in millions rounded to 2 decimal places. Economic value added for Acme million Economic value added for Apex millionGiven the information below. Find the Weighted Average Cost of Capital Market Value of Equity = $22,000,000; Debt = $15,000,000; Cash or Cash Equivalents = $15,000,000 iD = 0.10 or 10% iMKT = 0.17 or 17% tCorp = 0.30 or 30% bK = 1.5 IRF = 0.02 = 2%Bombay Company's book and market value balance sheets are as follows: (NWC = net working capital; LTA = long term assets; D = debt; E = equity; V = firm value): Book Values Market Values NWC 200 500 D NWC 200 500 D LTA 2,300 2,00 E LTA 2,800 2,500 E 2,500 2,500 V 3,000 3,000 V According to MM's Proposition I corrected for taxes, what will be the change in company value if Bombay issues $200 of equity and uses it to make a permanent reduction in the company's debt? Assume a 21 percent marginal corporate tax rate. Multiple Choice A) +$70 B) −$42 C) $0 D) +$140 Please show your work
- SABC Limited has the following information: The market values of the different components are: Debt (long-term loans): R200m. and Ordinary Shares: R500m. The current (market related) cost of the different components was already calculated as being. Debt (long-term loan) 6% (after-tax) and Ordinary Shares: 14%. Required: Calculate the WACC of SABC Limited by: a. Using the mathematical formula b. Completing the WACC tableHere are data on two firms: Equity ($ million) ROC (%) Cost of Capital (%) Debt ($ million) Аспе 140 60 16 10 Арех 440 160 14 11 a-1. Calculate the economic value added? (Do not round intermediate calculations. Enter your answers in millions) Acme Aрех Economic value added milion milionCan you explain the information below market value added (MVA) analysis and interpretation of results below. Market Value of Equity:$133,341,000,000.00 Plus: Market Value of Debt:$13,677,000.00 Equals: Market Value of Firm:$133,354,677,000.00 Minus: Total Invested Capital:($1,944,100.00) Equals: MVA$133,356,621,100.00