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Firm and Equity Valuation Through Required Returns
The weighted average cost of capital of ABC Corp based on market values is 15.6% while its cost of ordinary shares is 21.0%. It has a long-term debt to equity ratio of 150%. The expected total dividends for the year is P3,400,000 and the growth rate of the share value is 4%.
Compute for the:
1.Equity value
2. Firm value
Step by step
Solved in 2 steps
- Alibaba Group has a share price of $25 today. If Alibaba Group is expected to pay a dividend of $0.75 at the end of the year, and its stock price is expected to grow to $26.75 at the end of the year, then Alibabaʹs dividend yield and equity cost of capital are: A. 3.0% and 7.0% respectively. B. 3.0% and 10.0% respectively. C. 4.0% and 6.0% respectively. D. 4.0% and 10.0% respectively.If the company's dividends growth rate is 2%, what would be the optimal capital structure for ABC Co.? ABC Co. has the following projected results for next year's operation depending on the chosen capital structure. Debt Dividends Cost of Ratio Per Share Equity 0% P5.50 11.5 % 25% 6.00 12.0 % 40% 6.50 13.0 % 50% 7.00 14.0 % 75% 7.50 15.0 % A. 0% debt; 100% equity B. 25% debt; 75% equity C. 40% debt; 60% equity D. 50% debt; 50% equity E. 75% debt; 25% equityUse the following information to compute the weighted average cost of capital (WACC) of GoGo Inc. ▪ Debt information: The beta of GoGo Inc. stock is 1.5 . Risk-free rate is 4% • Market return is 15% • GoGo's capital structure is 65% equity and 35% debt. The tax rate is 21%. 14.62% Bonds will mature in 9 years. The maturity value is $1,000. GoGo's WACC is.. 15.47% The coupon rate is 8%, with semiannual payments. The current bond price is $1,015. 12.20% 13.32%
- Alpha Corporation has average annual free cashflows to the equity holder and to the firmof P3,000,000 and P3,350,000 respectively. Assuming that the weighted average cost ofcapital and actual return of on assets is 16.75% while the market return on Alpha's debt is7%, what is the value of its equity? a. P34,358,974.36 b.P15,000,000.00 c.P17,910,447.76 d.P20,000,000.00Problem 1 Assume that ABC Corporation earns a net income of 10 million for the current period. The corporation also needs Br 8 million for new investments for the next period. Suppose the target capital structure of debt to equity ratio is one to three ratios. Based on this, determine the amount of dividend to be paid based on the residual dividend policy? Beob omEstimating Cost of Equity Capital Assume that a company’s market beta equals 0.8, the risk-free rate is 5%, and the market return equals 8%. Compute the company’s cost of equity capital. Round answer to one decimal place (ex: 0.0245 = 2.5%) Answer%
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- A crucial factor in the financial decisions of a company, including the evaluation of capital investment proposals, is the cost of capital. The following information is available for Vertigo Ltd. Current price per share on Stock Exchange Mauritius (SEM) Last year's dividend per share Expected average annual growth rate of dividends Beta coefficient for Vertigo Ltd In addition, the following information has been established: Expected rate of return on risk-free securities Expected return on the market portfolio Rs 2.00 Rs 0.10 17% 0.80 8% 12% a) Critically analyse the CAPM using the market return-based measure of beta for less liquid stocks and suggest a solution to such problems when estimating beta. b) Vertigo Ltd decides to raise MUR 10 million for a new investment and decides to issue ordinary shares. It is expected to pay a constant dividend of MUR 1 at the end of each year for five years, after which the dividend is expected to increase at a rate of 10% every year. The required…The investment banking firm of Stan Inc. will use a dividend valuation model to appraise the shares of the DB Corporation. Dividends (D) at the end of the current year will be P1.20. The growth rate (g) is 9% and the discount rate (K) is 13%?1.a. Austin Metal Company reported Current Assets of $209,000 and Current Liabilities of $110,000. Calculate working capital and explain the results 1.b. The Company DEN has a beta of 1.30. The risk-free rate of return is 1.90 percent and the market rate of return is 5.10 percent. What is the CAPM cost of equity? kindly explain in detail