(a) An MNC has total assets of $150 million and debt of $50 million. firm's before-tax cost of debt is 10 percent, and its cost of financing with e is 12 percent. The MNC has a corporate tax rate of 32 percent. What is firm's weighted average cost of capital? Slater Co. is a US based MNC that finances all operations with debt and e It borrows U.S. funds at an interest rate of 10 percent per year. The long risk-free rate in the United States is 5 percent. The stock market return United States is expected to 15 percent annually. Slater's beta is 1. target capital structure is 40 percent debt and 60 percent equity. Slater subject to a 30 percent corporate tax rate. Estimate the cost of capit Slater Co.

(a) An MNC has total assets of $150 million and debt of $50 million. firm's before-tax cost of debt is 10 percent, and its cost of financing with e is 12 percent. The MNC has a corporate tax rate of 32 percent. What is firm's weighted average cost of capital? Slater Co. is a US based MNC that finances all operations with debt and e It borrows U.S. funds at an interest rate of 10 percent per year. The long risk-free rate in the United States is 5 percent. The stock market return United States is expected to 15 percent annually. Slater's beta is 1. target capital structure is 40 percent debt and 60 percent equity. Slater subject to a 30 percent corporate tax rate. Estimate the cost of capit Slater Co.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Simple Tech Inc is an Australian company operating in a pure imputation tax system. It is currently financed entirely (100%) by equity and has a beta of 0.8. After examining its capital structure, Simple Tech finds that the optimal capital structure can be achieved at D/E ratio of 0.4. The before- tax cost of debt capital for Simple Tech at the optimal capital structure is 10% p.a. The risk-free rate and market risk premium are 5% p.a. and 7% p.a., respectively. If the statutory corporate tax rate is 30%, which of the following is closest to the cost of equity at the optimal capital structure (using the approach covered in the lecture)? O 12.03% p.a. 12.84% p.a. 11.69% p.a. 10.60% p.a. 12.17% p.a.
Suppose that MNINK industries' capital structure features 63 percent equity, 7 percent preferred stock, and 30 percent debt. If the before-tax component costs of equity, preferred stock, and debt are 11.60 percent, 9.5 percent, and 9 percent, respectively, what is MNINK's WACC if the firm faces an average tax rate of 21 percent and can make full use of the interest tax shield?
Lafayette Group (U.S.). The Lafayette Group, a private equity firm headquartered in Boston, borrows £5,000,000 for one year at 7.375% interest. a. What is the dollar cost of this debt if the pound depreciates from $2.0260 = £1.00 to $1.9460 = £1.00 over the year? b. What is the dollar cost of this debt if the pound appreciates from $2.0260 = £1.00 to $2.1640 = £1.00 over the year? a. What is the dollar cost of this debt if the pound depreciates from $2.0260 = £1.00 to $1.9460 = £1.00 over the year? % (Round to two decimal places.) b. What is the dollar cost of this debt if the pound appreciates from $2.0260 = £1.00 to $2.1640 = £1.00 over the year? % (Round to two decimal places.)
Barclay Corp is operating in a country K where the corporate tax is 40%, personal income tax on bond investment is 25% while the personal tax on stock is 29%. Assume the firm’s earnings before interest and taxes is $5,400,000 and cost of equity with zero debt is 9%. (Please Show Work) If Barclay current has $12 million total market value of debt financing, what would be the market value of the company of Barclay Corp in this country K?(Please Show Work) What is the proportion of debt (wd) and equity (ws) financing for Barclay Corp with financial leverage? (Please Show Work)
Suppose a parent company wishes to determine the expected after-tax dollar cost of Rs.600 million local debt (at 16 per cent) raised by its subsidiary company S. Assuming a tax rate of 40 per cent, anticipated average annual devaluation of 3 per cent of the Indian rupee in relation to the US dollar and tax deduction of foreign, exchange losses, compute the cost of the debt.
MM Model with Zero Taxes An unlevered firm has a value of $625 million. An otherwise identical but levered firm has $75 million in debt. Under the MM zero-tax model, what is the value of the levered firm? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to the nearest whole number. LA million
Particulate plc is an all-equity-financed business with a market value of £35 million and a cost of capital (after tax) of 20 per cent p.a. The business intends to purchase and cancel £8 million of equity finance using the cash raised from issuing 10 per cent irredeemable loan notes. The rate of corporation tax is 30 per cent. Assuming that the assumptions of Modigliani and Miller (in a world with taxes) are correct, how will the capital restructuring affect: (a) The market value of Particulate plc; (b) Its cost of equity; and (c) Its weighted average cost of capital?
An investment centre has reported net operating profits after tax of sh.24 million. Taxation is paid at the rate of 25 per cent of the operating profit. The company has a risk adjusted weighted average cost of capital of 12 per cent per annum and is paying interest at 9 per cent per annum on a substantial long term loan. The investment centre's non-current asset value is sh.11 million and the net current assets have a value of sh.22 million. What is the Economic Value Added (EVA) for the period? Select one: A. 6.32M B. 8.32M C. 7.32M D. None of the above
You are the financial manager of a competitive investment company in South Africa. You have been presented with two possible investments: Pink Limited and Purple Limited as shown below. You have been supplied with the following information regarding the two companies. Pink Limited Purple Limited Earnings before interest and tax R3 000 000 R4 000 000 Long term interest bearing debt R500 000 R800 000 Earnings attributable to shareholders R2 124 000 R2 822 400 Tax rate 28% 28% Share Capital R2 000 000 R5 000 000 Number of ordinary shares issued 200 000 400 000 Number of ordinary shares authorised 1 000 000 500 000 Current market price of the share R30 R20.00 Dividend per share R5 R3 As a financial manager you are very concerned about the dividend yield and dividend payout ratio as these…
Assuming that there is an unlevered firm and a levered firm. The basic information is given by the following table. Table1: Information of the firms Unlevered firm Levered firm EBIT 20000 20000 Interest Taxable income Tax (tax rate: 34%) Net income CFFA Assuming that: The size of the debt is 8000; cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5 Fill in the blanks What is the present value of the tax shield? Calculate the following values:a) Calculate value of unlevered firm; b) value of the levered firm; c) equity value; d) Cost of equity; e) cost of capital; f) systematic risk of the equity Suppose that the firm changes its capital structure so that the debt-to-equity ratio is 1.6, then recalculate the systematic risk of the equity If the firm now has the following project: in year 0, the cashflow is 5000, in year 1, the cashflow is -5500. Based on the IRR rule,…
From the following information, calculate the value of Levered Firm according to MM Approach, where value of Unlevered Firm is Rs.15 Lakh, Debt of Levered Firm is 6 Lakhs and the Tax Rate is 40 percent a. Rs 17,40,000 b. Rs 20,40,000 c. Rs 22,40,000 d. Rs 23,40,000

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