A. The Manix Company was recently formed to manufacture a new product. It has the following capital structure in market value terms:                         K   Debentures 6,000,000   Preferred stock 2,000,000 Common stock (320,000 shares) 8,000,000 Total.              16,000,000 The company has a marginal tax rate of 40 percent. A study of publicly held companies in this line of business suggests that the required return on equity is about 17 percent (The CAPM approach was used to determine the required rate of return). The Manix Company’s debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Required Calculate the firm’s present weighted average cost of capital

The asset of a firm is financed by $100,000 Common Equity, $100,000 Preferred Stock, and $300,000 Bonds. The Weighted Average Cost of Capital (WACC) is 10%. Given that the asset is likely to generate Net Operating Profit After Tax of $100,000. What would be the firm’s EVA?   Question 5 options:   1)  $5,000   2)  $50,000   3)  $20,000   4)  None of the above.

33-Marhaba Company’s capital structure consists entirely of long-term debt and equity. The cost of capital for each component is shown as – before tax cost of debt (kd) 8% and cost of equity (ke) 15%. The proportion of capital for each component is Debt 40% and Equity 60%. What would be weighted average cost of capital of the company? Assume that the corporate tax rate is at 40%. a. 10.92% b. 12.2% c. 10.41% d. 8.88% Clear my choice

Q.An all-equity company that has a current value $300,000 is considering borrowing $60,000 and using the borrowed funds to repurchase shares. The company can borrow at 5%. Assume all available earnings are immediately distributed to common shareholders and all the M&M assumptions are satisfied except the corporate tax rate is 35%, and investors are subject to an 18% tax rate on equity income and a 25% tax rate on debt income. If the company proceeds with the capital restructuring, what will be the value of the company according to M&M Proposition I with personal and corporate taxes?

QUESTION 5 You are Chief Financial Officer of the ABC Corporation. ABC has two divisions, one of which is retail, and the other is manufacturing. ABC's debt-equity ratio (measured at market value) is one half. The company has $2.5 billion in face value of perpetual bonds which pay an annual coupon of 4% and have a yield to maturity of 10%. ABC's equity has a beta of 1.25. The company faces a 35% tax rate. The risk-free rate of return is 5.6% and the market risk premium, over and above the risk-free rate, is 8%. The company is considering a business expansion in the retail industry. The expansion project will generate $20 million free cash flow per year indefinitely. ABC is planning to maintain the industry average leverage ratio for the expansion project. Companies that operate purely in the manufacturing industry have an average beta of 0.8 and an average debt-equity ratio (measured at market value) of three quarter. Companies that operate purely in the retail industry have an average…

Ashely Corporation has 80 million outstanding equity shares and the following projected financial information for the next four years. The tax rate is 25%. Ashely’s cost of capital is 13%. Assume Ashely is fully financed with equity.     Year 1 2 3 4 Earnings Forecast ($millions)           1 Sales   474.28 520.31 571.88 728.99 2 Cost of Goods Sold 269.53 308.19 335.68 490.25 3 Selling, General & Admin. 102.05 108.25 105.24 135.76 4 Depreciation   12.00 15.00 12.50 15.50 5 Net Income   68.03 66.65 88.85 65.61 Capital Requirements ($millions)           6 Capital Expenditures 8.80 11.50 10.60 12.50 7 Increase in Net Working Capital 6.80 7.20 8.25 9.15   Ashely’s CFO wants to use P/E ratio to value the stock’s terminal value in year 4. The CFO forecasts the industry P/E ratio in year 4 is 20. Based on the forecasted P/E ratio, what is the…

A1. Payout policy (Answer all parts of this question.) (a) , What is the main theorem of Modigliani and Miller regarding the payout policy of firms? Explain. 1 (b) List four assumptions that must hold for the Modigliani-Miller theorem to be valid. (c) Consider a company that has 100 million shares outstanding. The market value of the company is currently at GBP 5 billion. Last year, the company paid out an annual dividend of GBP 2 per share. This year, the company intends to double the dividend to shareholders, but since the company has not enough cash, the company intends to raise the additional money required to pay the dividend in rights issue. i. ( If the price of a new share offered is GBP 25, what is the fair value of a right to buy a new share? Hint: The company first pays the dividends, and then raises the capital. ii. ( ) Contrary to theory, however, as soon as the company announces the rights issue, the share price drops. Why? Think of a reason why this transaction, i.e.,…

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6 Please show work in Excel format, thanks!

Q.The ASF Company was recently formed to manufacture a new product it has the following capital structure in market value terms Long term liabilities =6 Preferred stock =3 Common stock =8 Total =17 The company marginal tax rate of 40 % with interest expense per month 1. Dividend rate on preferred is 9% with per value of 1000 flotation cost is 10% on per value , dividend rate on common stock is 15% with per value of 10 Market value of share is 1 5 with growth rate 10% . Required Compute the firm present weighted average cost of capital?