A firm has a total market value of $10 million while its debt has a market value of $4 million. What is the after-tax weighted average cost of capital if the before-tax cost of debt is 10% the cost of equity is 15%, and the tax rate is 21%? Multiple Choice A) 10.4% B) 8.8% C) 12.2% D) 13.0%

A firm has a total market value of $10 million while its debt has a market value of $4 million. What is the after-tax weighted average cost of capital if the before-tax cost of debt is 10% the cost of equity is 15%, and the tax rate is 21%? Multiple Choice A) 10.4% B) 8.8% C) 12.2% D) 13.0%

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter17: Multinational Capital Structure And Cost Of Capital

Section: Chapter Questions

Problem 12QA

See similar textbooks

Related questions

Q: Question 2 The management of a power generation company in Zambia is planning to invest K100m for…

A: Investment means engaging your funds to generate more income for the future. Basically, investors…

Q: 6. Find the amount at the end of 15 years if P 55 000 is invested at an interest rate of 5% for the…

A: Future value of the invested value may be calculated using following formula Final Amount…

Q: Explain the differences between depreciation expense and impairment loss of property, plant and…

A: The difference between Depreciation and impairment is as follows: Depreciation Impairment It is…

Q: 2. A loan is being repaid with 20 annual payments of P1,000 at the end of each year. Atter the tenth…

A: Here, Annual Payment is P1,000 Number of Payments is 20 Semi Annual Payments after 10 payments is X…

Q: The Cabinet Shoppe is considering the addition of a new line of kitchen cabinets to its current…

A: Contribution margin The contribution margin can be expressed in terms of gross or per unit. After…

Q: Calculate the capitalized cost of a project with a P3,000,000 beginning an extra P850,000 investment…

A: Capitalized cost would be present value of all cost that are going to occur in future course of time…

Q: Given that Operating Cash Flow is $300 Net Capital Spending $125 Change in Net Working Capital $ 75

A: Cash flow from assets can be get after deduction of capital expenditure and change in working…

Q: 13. A discounted loan of $3,000 at a simple discount rate of 6.5% is offered to Mr. Jones. If the…

A: 1. Interest amount = (face Value - amount received = 3000 - 2869.11 = $130.89) 2. Time when the…

Q: ABC Inc expects to have EPS (earning per share) of $5 in the coming year. The firms plan to pay all…

A: EPS next year = $5 All earning is paid as dividend, hence growth rate (g) = 0 Dividend next year…

Q: Engr. Tongol borrowed money from a loan shark. He receives from the loan shark an amount of P…

A: Simple interest = Amount borrowed * Interest rate * (Number of months / 12)

Q: An electronic company is thinking of investing to an equipment in a new business venture with a 15%…

A: Sensitivity Analysis: It is the analyses of effect of changes made to variables in the projects…

Q: ote a price for a custom-designed doughnut machine to be delivered by the end of 2018. Once it is…

A: The minimum return on investment expected by the company is known as the required rate of return. It…

Q: Joe's starting salary as a mechanical engineer is ar Joe is planning to place a total of 8% of his…

A: Joe's salary in the first year is $100,000. 8% of the salary is invested into a mutual fund.…

Q: In 2019, Scotiabank's interest rate on GICS was 1% for a 1-yr term and 2.5% for a 10-yr term.…

A: Data given: Rate on GICs for 1 year term=1% Rate on GICs for 10 year term=2.5% Average annual return…

Q: 3.An industrial firm is considering purchasing several programmable controllers and automating the…

A: This is a problem involving present worth and annual worth. In this problem, we have to calculate…

Q: The real risk-free rate of interest, r*, is 3%. Inflation is expected to be 4% this year, 5 percent…

A: Bonds: It is an agreement by a borrower to pay a a money lender their principal and usually…

Q: 1. An asset that is purchased with the expectation that it will produce income or appreciate at some…

A: Hi, since you have posted multiple question, I am answering the first three. Please repost the…

Q: Using the corporate valuation model approach, what should be the company's stock price today?

A: Free cash flow = (EBIT*(1-T)) + Depreciation exp. - Capital expenditure - Changes in working capital…

Q: If the manager of a gold mine wants to protect its operations against a market price decline, while…

A: It is a financial instrument whose value/price is determined by the given assets. Options, forwards,…

Q: The goal of credit policy

A: The goal of credit policy is to maximise sales

Q: HOWing information for Abraccadabra of America Debt $84,000,000 book value outstanding. The debt is…

A: Cost of capital would be the weighted average cost of debt and also weighted cost of equity and that…

Q: You are considering buying a stock that will pay a dividend of $2.3 next year. The dividend is…

A: To calculate the stock price we will use the following formula Stock price = D1/(R-G) Where D1-…

Q: a. If the first payment is made four years from now, what is this grand prize really worth today?…

A: Present Value is the value of money in today at zero period for all the payments which is received…

Q: What is the future value of a $900 annuity payment over five years if interest rates are 8 percent?…

A: Future Value: The future value is the amount that will be received at the end of a certain period.…

Q: 6. Find the amount at the end of 15 years if P 55 000 is invested at an interest rate of 5%…

A: Initial investment (I) = ₱55,000 Interest rate for first 10 year = 0.05 Semiannual interest rate for…

Q: Total amount of depreciation of an asset cannot exceed its: None of these O Scrap value O…

A: As per Bartleby guidelines, If multiple questions are posted, only the first 1 question will be…

Q: List the business, technological, and organizational challenges that were addressed throughout the…

A: Management is the administration of a company, a non-profit organisation, or a government agency.…

Q: Which of the following is true? A.Forward contract buyers and sellers do not know who the…

A: Forward and futures contracts are derivatives agreements in which two parties associate to acquire…

Q: ich of the following gross valuation methods on a building would most likely be used by a…

A: There are many methods of doing valuation of the building but some are not used much but some are…

Q: Chango Industries has decided to borrow $50,000,000.00 for six months. To reduce the company’s…

A: Interest rate swap Under Interest rate swap, one party pays fixed interest rate while another party…

Q: An equipment has an original cost and book value of 2,100,000 and 1,560,000 respectively. It has…

A: Sound value of an asset is the depreciated replacement cost of the asset. This value differs from…

Q: Allergan Industries' stock is currently selling for $93 and is expected to pay a dividend of D1 =…

A: Current stock price (P0) = $93 Stock price at the end of year 4 (P4) = ? Growth rate (g) = ? Beta…

Q: A venture will provide a net cash inflow of $57,000 in Year 1. The annual cash flows are projected…

A: Year 1 cash inflow = $57,000 Required return = 0.156 Initial cost = $739,000 Growth rate to break…

Q: . A bank offers a 272 – day discounted loan at a simple discount rate of 12%. (a) How much money…

A: a) Discounted loan is a loan which doesn't have to pay interest periodically. This type of loan…

Q: Fample Problem: Principal = P150,000 Period P I A rate = 18% 1 term = 1 year compounding mode…

A: The more is compounding more is accumulated interest and more is the future value of money…

Q: equired: Calculate the project's net Without making any calcul

A: NPV = Present value of cashinflows - Present value of cashoutflows.

Q: Initial investment in equipment Enitial investment in working capital $ 150,000 $ 30,000 $ 160,000 $…

A: The cash flow from the operation would be the after deduction of operating expenses and taxes and…

Q: 12 You will bid to supply 3 jets per year for each of the next three years to the Navy. To get set…

A: We have to bid for 3 Jets per year for next 3 year to the Navy - 3*3 = 9 Jets in total $60 Million…

Q: Tower City aims to construct a new bypass between two main routes that will reduce commuter travel…

A: Here, Cost of Route is $15 million Cost Savings is 17500 people $100 per year Cost Expense is $7500…

Q: Our company, Mom and Pop Inc is at the the end of the fiscal year. We observe that in the market our…

A: Dividend Growth Model: It is valuation model, where fair worth of stock is determined , assuming…

Q: True or false: The levels of fixed-cost assets and funds that management selects affect the…

A: In Funds management there are managers who manage the funds and based on their skills and talents…

Q: company's discount rate is 12%, then the net present value for this investment is closest to:…

A: NPV= Present value of cashinflows - Present value of cashoutflows.

Q: The returns on AA Berhad and BB Berhad are given below, State of Economy Probability of Return (%)…

A: Data given: State of Economy Probability of occurring Return(%) of AA Berhad Return(%) BB Berhad…

Q: 31) Today, Dexter is investing $24,000 at 5.5 percent, compounded annually, for 6 years. How much…

A: Compounding technique is an important concept of Time Value of Money, where, the interest earned on…

Q: 13. A discounted loan of $3,000 at a simple discount rate of 6.5% is offered to Mr. Jones. If the…

A: The amount of discount depends on the period and interest rate and amount of the loan taken and cash…

Q: Bernard co. has 7% coupon bonds on the market that have 13 years left to maturity. The bonds will…

A: Current bond price will be equal to present value of Maturity Value and present value of interest…

Q: Given fixed costs is Rs 1,00,000 selling price per unit is Rs 10 and variable cost per unit is Rs 6.…

A: Since you have posted multiple questions, as per answering guidelines we shall be solving first…

Q: A tractor was purchased for $74486 and at the bank interest rate of 4.67% per year. The residual…

A: Compound interest is interest charged on a loan or deposit. It is the most widely utilized idea in…

Q: Mr Price, has no debt outstanding and a total market value of R150,000. Earnings before interest and…

A: Earnings per share is calculated by dividing Earnings available to equity shareholders by number of…

Q: where do the collateral and security in the mortgage market belong? a. securities b. properties…

A: Collateral and security in the mortgage market belong to a. securities.

Question

Multiple Choice

A) 10.4%

B) 8.8%

C) 12.2%

D) 13.0%

Definition Definition Amount of return a company generally pays to its equity investors. The cost of equity represents the compensation required by the market in lieu of owning the asset firm and simultaneously bearing the risk of ownership.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Information;

VIEW

Calculation of weighted average cost of capital (WACC);

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Assume Skyler Industries has debt of $4,500,000 with a cost of capital of 7.5% and equity of $5,500,000 with a cost of capital of 10.5%. What is Skylers weighted average cost of capital?
A firm has two components in its capital structure, debt and equity. The after-tax cost of debt is 3% and the cost of equity is 11%. The proportion of equity in the capital structure is 75%. What is the firm's Weighted Average Cost of Capital? Select one: a. 9.47% b. 8.78% c. 9.00% d. 8.37%
If the return on asset (ROA) is 10%, the pre-tax cost of debt is 8%, and the corporate tax rate is 20%. What will the return on equity (ROE) be if the capital structure is 60% equity and 40% debt? Group of answer choices 10% 13.6% 9% 12.4%
Company X has a cost of equity of 16.31% and a pretax cost of debt of 7.8%. The debt-equity ratio is 0.56 and the tax rate is 21%. What is the unlevered cost of capital? A )14.01% b) 13.85% c) 13.70% D) 14.08% E)14.26%
Assume that a company borrows at a cost of 0.08. Its tax rate is 0.35. What is the minimum after-tax cost of capital for a certain cash flow if a. 100 percent debt is used? b. 100 percent common stock? (assume that the stockholders will accept 0.08)
Assume the following data for U&P Company: Debt (D) = $100 million; Equity (E) = $300 million; rD = 6%; rE = 12%; and TC = 30%. Calculate the after-tax weighted average cost of capital (WACC): Multiple Choice A) 10.5% B) 10.05% C) 15% D) 9.45%
As an Analyst you were tasked to compute for the Weighted Average Cost of Capital of variouscompanies given the following information. Income tax rate is 25% a. What is the cost of equity of each companies?b. What is the after tax cost of debt of each companies?c. What is the WACC of each companies? W Corp A Corp Co. Corp Ca Corp Risk Free rate 4.00% 3.00% 2.00% 3.50% Beta 1.25 % 1.50% 1.30% 1.40% Market Return 12.00% 11.00 % 10:00% 8:00% Debt to Equity Ratio 2.5 3 4 3.5 Credit Spread om BPS 200 300 250 150
What proportion of a firm is equity financed if the WACC is 14%, the after-tax cost of debt is 7.0%, the tax rate is 35%, and the required return on equity is 17%? (Answer as a whole percentage, i.e. 5.25%, not 0.0525)
13. Using Weighted Average Cost of Capital (WACC) ignoring taxes compute the cost of capital of a company with debt ratio of 0.75:1 and is paying yearly average interest for its loans of 4% and dividend rate of 5% yearly. a) 4.00% b) 4.25% c) 4.5% d) 5.00% 14. Using capital Asset Pricing Method (CAPM) compute for the cost of capital (equity) with risk free rate of 5%, market return of 12% and Beta of 1.3. a) 14.01% b) 14.10% c) 14.00% d) 14.11% 15. Using capital Asset Pricing Method (CAPM) compute for the cost of capital (equity) with risk free rate of 4%, market return of 8% and Beta of 1.5. a) 10.00% b) 11.00% c) 12.00% d) 13.00%
If the state tax rate is 20% and the federal tax rate is 30%, what is the total effective tax rate? a. 34% b. 50% c. 44% d. 37% 2. Holding all other variables constant, which of the following would increase return on equity? An increase in _____________. a. the tax rate b. the equity ratio (equity/total assets) c. total assets d. total asset turnover
Ch 18) Suppose Alcatel-Lucent has an equity cost of capital of 10.1%, market capitalization of $11.52 billion, and an enterprise value of $16 billion. Suppose Alcatel-Lucent's debt cost of capital is 5.7% and its marginal tax rate is 33% a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here, c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is 8.34 % (Round to two decimal places.) b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here, The NPV of the project is $87.51 million. (Round to two decimal places.) c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? The debt capacity of the…
which one is correct please confirm? QUESTION 4 A firm with a 40% marginal tax rate has a capital structure of $60,000,000 in debt and $140,000,000 in equity. What is the firm's weighted cost of capital if the marginal pretax cost of debt is 12%, the firm's average pretax cost of debt outstanding is 8%, and the cost of equity is 14.5%? a. 10.45% b. 11.59% c. 12.31% d. 13.75%