An Australian company has total assets of $150 million and debt of $30 million. The firm's before-tax cost of debt is 5% and its cost of equity is 12%. If the corporate tax rate is 30%, calculate the firm's cost of capital and the appropriateness of its use as a discount rate in capital budgeting.
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a) An Australian company has total assets of $150 million and debt of $30 million. The firm's before-tax cost of debt is 5% and its
(b) Assume AUD = 0.58 GBP and inflation is 3.5% pa in Australia and 7% pa in Great Britain. Estimate the AUD/GBP spot rate in one year's time and comment on the accuracy of this estimate.
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(b) Assume AUD = 0.58 GBP and inflation is 3.5% pa in Australia and 7% pa in Great Britain. Estimate the AUD/GBP spot rate in one year's time and comment on the accuracy of this estimate.
by Bartleby Expert- a) An Australian company has total assets of $150 million and debt of $30 million. The firm's before-tax cost of debt is 5% and its cost of equity is 12%. If the corporate tax rate is 30%, calculate the firm's cost of capital and the appropriateness of its use as a discount rate in capital budgeting.(a) An MNC has total assets of $150 million and debt of $50 million. The firm's before-tax cost of debt is 10 percent, and its cost of financing with equity is 12 percent. The MNC has a corporate tax rate of 32 percent. What is this firm's weighted average cost of capital? (b) Slater Co. is a US based MNC that finances all operations with debt and equity. It borrows U.S. funds at an interest rate of 10 percent per year. The long-term risk-free rate in the United States is 5 percent. The stock market return in the United States is expected to 15 percent annually. Slater's beta is 1.5. Its target capital structure is 40 percent debt and 60 percent equity. Slater Co.is subject to a 30 percent corporate tax rate. Estimate the cost of capital to Slater Co.A company requires a 26% internal rate of return (before taxes) in U.S. dollars on project investments in foreign countries. Solve, a. If the currency of Country A is projected to average an 8% annual devaluation relative to the dollar, what rate of return (in terms of the currency there) would be required for a project? b. If the dollar is projected to devaluate 6% annually relative to the currency of Country B, what rate of return (in terms of the currency there) would be required for a project?
- To understand the advantage of debt capital from a tax perspective in the United States, determine the before-tax and approximated after-tax weighted average costs of capital if a project is funded 25%-75% (D-E mix) with debt capital borrowed at 14% per year. A recent study indicates that corporate equity funds earn 22% per year and that the effective tax rate is 37% for the year. The tax advantage reduces the WACC from % to % per year.A firm has a total market value of $10 million while its debt has a market value of $4 million. What is the after-tax weighted average cost of capital if the before-tax cost of debt is 10% the cost of equity is 15%, and the tax rate is 21%? Multiple Choice A) 10.4% B) 8.8% C) 12.2% D) 13.0%To understand the advantage of debt capital from a tax perspective in the United States, determine the beforetax and approximated after-tax weighted average costs of capital if a project is funded 40%–60% with debt capital borrowed at 9% per year. A recent study indicates that corporate equity funds earn 12% per year and that the effective tax rate is 35% for the year.
- Thunderhorse Oil. Thunderhorse Oil is a U.S. oil company. Its current cost of debt is 7.4%, and the 10-year U.S. Treasury yield, the proxy for the risk-free rate of interest, is 3.9%. The expected return on the market portfolio is 8.1%. The company's effective tax rate is 38%. Its optimal capital structure is 55% debt and 45% equity. a. If Thunderhorse's beta is estimated at 1.6, what is Thunderhorse's weighted average cost of capital? b. If Thunderhorse's beta is estimated at 1.1 , significantly lower because of the continuing profit prospects in the global energy sector, what is Thunderhorse's weighted average cost of capital?Sainsbury is financed by both debt and equity. Using the following information and calculate the weighted average cost of capital (WACC) of Sainsbury. (HINT)the average of recent yearly returns of FTSE100 as proxy of UK market is 7.5%; UK corporate tax rate is 19%). Debt 748,000 Equity 6,604,000 Risk free rate 1.971% Beta 0.27 Current Debt 258,000 Total liabilities and stockholders' equity 25,162,000Thunderhorse Oil. Thunderhorse Oil is a U.S. oil company. Its current cost of debt is 7.20%, and the 10-year U.S. Treasury yield, the proxy for the risk-free rate of interest, is 3.10%. The expected return on the market portfolio is 8.30%. The company's effective tax rate is 38%. Its optimal capital structure is 70% debt and 30% equity. a. If Thunderhorse's beta is estimated at 1.30, what is Thunderhorse's weighted average cost of capital? b. If Thunderhorse's beta is estimated at 1.00, significantly lower because of the continuing profit prospects in the global energy sector, what is Thunderhorse's weighted average cost of capital? a. If Thunderhorse's beta is estimated at 1.30, what is Thunderhorse's weighted average cost of capital? % (Round to two decimal places.)
- Thunderhorse Oil. Thunderhorse Oil is a U.S. oil company. Its current cost of debt is 6.70%, and the 10-year U.S. Treasury yield, the proxy for the risk-free rate of interest, is 3.30%. The expected return on the market portfolio is 8.60%. The company's effective tax rate is 39%. Its optimal capital structure is 40% debt and 60% equity. a. If Thunderhorse's beta is estimated at 1.70, what is Thunderhorse's weighted average cost of capital? b. If Thunderhorse's beta is estimated at 1.30, significantly lower because of the continuing profit prospects in the global energy sector, what is Thunderhorse's weighted average cost of capital?Suppose Alcatel-Lucent has an equity cost of capital of 9.2%, market capitalization of $10.95 billion, and an enterprise value of $15 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.9% and its marginal tax rate is 38%. a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here,? c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is%. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 1 FCF ($ million) - 100 50 Print C Done 2 99 3 66 XSuppose Alcatel-Lucent has an equity cost of capital of 10.4%, market capitalization of $11.52 billion, and an enterprise value of $16 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.6% and its marginal tax rate is 34%. a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here, ? c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is 9.34 %. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 1 FCF ($ million) 45 Print 0 - 100 Done 2 101 3 66 - X
