Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- Weighted average cost of capital A. The capital for investment of Executive Consultants, Inc. is as follows: Sources of capital Capital Debt (corporate bonds) $4,100,000 Prefferent shares $2,200,000 Common shares $2,800,000 B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond.C. The issue of preferred shares has a cost of $ 5 per share and will pay a dividend of 10% of its par value of $ 110 per preferred share.D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23.E. Executive Consultants, Inc. has a tax liability of 35%.Problems:You must submit the procedure and all the calculations.1. Determine the capital structure of Executive Consultants, Inc.2. Calculate the cost of debt after taxes.3. Calculate the cost of preferred equity.arrow_forwardI need help solving FCFE and Cash Flow per Share. See below and advise. All in MM. Exploration Expense: -12.8 Asset Retirement Obligation Accretion: -6.0 Depreciation, Depletion and Amortization: -378.9 Working Capital (Increase) / Decrease: (30.0) Capital Expenditures: 156.1 Net Debt: -11.0 Number of Shares Outstanding: 251arrow_forwardNeed all three partsarrow_forward
- Integrative-Optimal capital structure Medallion Cooling Systems, Inc., has total assets of $10,200,000, EBIT of $2,000,000, and preferred dividends of $197,000 and is taxed at a rate of 40%. In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment: Capital structure debt ratio 0% 15 30 45 60 Debt Ratio EBIT Less: Interest EBT Taxes @40% Net profit Less: Preferred dividends EPS Profits available to common stockholders # shares outstanding a. Calculate earnings per share for each level of indebtedness. b. Use the equation Po EPS/r, and the earnings per share calculated in part (a) to calculate a price per share for each level of indebtedness. c. Choose the optimal capital structure. Justify your choice. a. Calculate earnings per share for each level of indebtedness. Calculate the EPS below: (Round to the nearest dollar.…arrow_forwardHere are book- and market-value balance sheets of the United Frypan Company (figures in $ millions): Book-Value Balance Sheet $ 35 65 $ 100 Net working capital Long-term assets Market-Value Net working capital Long-term assets Balance $ 35 190 $225 Debt Equity Sheet Debt a. PV tax shield b. WACC c. New value of the firm Equity $ 40 60 $ 100 Assume that MM's theory holds except for taxes. There is no growth, and the $40 of debt is expected to be permanent. Assume a 21% corporate tax rate. $ 40 185 $ 225 a. How much of the firm's value is accounted for by the debt-generated tax shield? Note: Enter your answer In million rounded to 2 decimal places. b. What is United Frypan's after-tax WACC if "Debt = 6.9% and Equity = 16.1% ? Note: Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. c. Now suppose that Congress passes a law that eliminates the deductibility of interest for tax purposes after a grace period of 5 years. What will be the new…arrow_forwardUse the following information to answer this question. Total assets Total current liabilities Total expenses Total liabilities Total revenues Tax rate $150,000 105,000 70,000 110,000 80,000 40% After -tax cost of capital 12% Invested capital is defined as total assets less total liabilities. (round your answers te one decimal ) Capital turnover equal O A) 53.3% B) 2 OC) 6.7% D) 28.6%arrow_forward
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