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

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

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter14: Distributions To Shareholders: Dividends And Repurchases

Section: Chapter Questions

Problem 2STP

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Part Two : Solve the following question : Question One : LOFTA Corporation is interested in measuring the cost of each specific type of capital as well as the weighted average cost of capital. Historically, the firm has raised capital in the following manner: Source of capital weight Long term debt 35% Preferred stock 12% Common stock equity 53% The tax rate of the firm is currently 30%. The needed financial information and data are as follows: Debt LOFTA can raise debt by selling $1,000-par-value, 6.5% coupon interest rate, 10-year bonds on which annual interest payments will be made. To sell the issue, an average discount of $20 per bond needs to be given. There is an associated flotation cost of 2% of par value. Preferred stock Preferred stock can be sold under the following terms: The security has a par value of $100 per share, the annual dividend rate is 6% of the par value, and the flotation cost is expected to be $4 per…
The Manx Company was recently formed to manufacture a new product. It has the following capital structure in market value terms: 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 Manx Company’s debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the ﬁrm’s present weighted average cost of capital.
The Manx Company was recently formed to manufacture a new product. It has the following capital structure in market value terms. Debentures $ 6,000,000 Preferred Stock $ 2,000,000 Common Stock (320,000 shares) $ 8,000,000 Total Capital $ 16,000,000 The company has a marginal tax rate of 15%. A study of publicly held companies in this line of business suggests that the requires return on equity is about 17%. (The CAPM approach was used to determine the required rate of return.) The Manx Company’s debt is currently yielding 13%, and its preferred stock is yielding 12%. Compute the firms weighted average cost of capital.
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Company AAA and Company ZZZ have differences in their capital structures, but other than that they are pretty much alike. In this problem you will need to calculate the value of each company's Equity. Given: Company AAA: Unlevered. Annual income is tax-free. $28.6 million in EBIT is expected to be earned every year forever. No net income is retained, and the full amount is used to pay dividends. 4.1 million shares are currently being traded in the market. Each share currently sells for $75. Company ZZZ: Levered. Annual income is tax-free. $87 million is the market value of its debt. The debt has the following characteristics: neverending interest payments, 7 % interest rate. $28.6 million in EBIT is expected to be earned every year forever. No net income is retained, and the full amount is used to pay dividends.1.9 million shares are currently being traded in the market. Each share currently sells for $119.
s Braxton Corp. currently has one million shares outstanding but no debt. If needed, however, the company can borrow at 6.2 percent interest. The company's WACC is currently 8 percent and the tax rate is 35 percent. a. What is the company's cost of equity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity b. If the firm converts to 20 percent debt, what will its cost of equity be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity c. If the firm converts to 50 percent debt, what will its cost of equity be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity d-1 If the firm converts to 20 percent debt, what is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC % WACC…
Company AAA and Company ZZZ have differences in their capital structures, but other than that they are pretty much alike. In this problem you will need to calculate the value of each company's Equity. Given: Company AAA: Unlevered. Annual income is tax-free. $11.1 million in EBIT is expected to be earned every year forever. No net income is retained, and the full amount is used to pay dividends. 3.4 million shares are currently being traded in the market. Each share currently sells for $58. Company ZZZ: Levered. Annual income is tax-free. $59 million is the market value of its debt. The debt has the following characteristics: neverending interest payments, 5% interest rate. $11.1 million in EBIT is expected to be earned every year forever. No net income is retained, and the full amount is used to pay dividends.1.7 million shares are currently being traded in the market. Each share currently sells for $75. (Do not round intermediate calculations and enter your answer in dollars, not…
Assume that company A wants to boost its stock price. The company currently has 20 million shares outstanding with a market price of $21 per share and no debt. A has had consistently stable earnings, and pays a 35% tax rate. Management plans to borrow $50 million on a permanent basis and they will use the borrowed funds to repurchase outstanding shares. If shareholders are perfectly rational and informed, what will the repurchase price per share be (keep two decimal places and assume that the new borrowing will not have any negative effects)?