sBraxton 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 iscurrently 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 equityb. If the firm converts to 20 percent debt, what will its cost of equity be? (Do not roundintermediate calculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)Cost of equityc. If the firm converts to 50 percent debt, what will its cost of equity be? (Do not roundintermediate calculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)Cost of equityd-1 If the firm converts to 20 percent debt, what is the company's WACC? (Do not roundintermediate calculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)WACC%WACC%%%d-2If the firm converts to 50 percent debt, what is the company's WACC? (Do not roundintermediate calculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)%

After tax cost of debt = Pretax cost of debt * (1 - tax rate)Weighted average cost of capital= After…

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 % %

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 % %

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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Braxton Corp. currently has one million shares outstanding but no debt. If needed, however, the company can borrow at 6.8 percent interest. The company's WACC is currently 8.6 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 8.6 % b. If the firm converts to 30 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 10.39 % c. If the firm converts to 40 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 11.39 % d-1 If the firm converts to 30 percent debt, what is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places,…
Garcia Company has no debt. Its cost of capital is 11.2 percent. Suppose the company converts to a debt-equity ratio of 1. The interest rate on the debt is 8.3 percent. Ignore taxes for this problem. e. What is the company's new cost of equity? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is its new WACC? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Cost of equity b. WACC % %
Horford Co. has no debt. Its cost of capital is 9.5 percent. Suppose the company converts to a debt-equity ratio of 1. The interest rate on the debt is 6.6 percent. Ignore taxes for this problem. a. What is the company’s new cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)b. What is its new WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Bento, Inc., has a target debt-equity ratio of .65. Its cost of equity is 16 percent, and its cost of debt is 5 percent. If the tax rate is 23 percent, what is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC:______%
Maroon Industries has a debt-equity ratio of 1.5. Its WACC is 10 percent, and its cost of debt is 5 percent. There is no corporate tax. a. What is the company's cost of equity capital? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b-1. What would the cost of equity be if the debt-equity ratio were 2? Note: Do not round intermediate calculations and enter your answer as a percent rounded to the nearest whole number, e.g.. 32. b-2. What would the cost of equity be if the debt-equity ratio were 6? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b-3. What would the cost of equity be if the debt-equity ratio were zero? Note: Do not round intermediate calculations and enter your answer as a percent rounded to the nearest whole number, e.g., 32. a. Cost of equity % b-1. Cost of equity % b-2. Cost of equity % b-3. Cost of equity %
Caddie Manufacturing has a target debt-equity ratio of .75. Its cost of equity is percent, and its pretax cost of debt is 7 percent. If the tax rate is 25 percent, what is 1 company's WACC? (Do not round intermediate calculations and enter your answer a percent rounded to 2 decimal places, e.g., 32.16.) WACC %
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Maroon Industries has a debt-equity ratio of 1.4. Its WACC is 14 percent, and its cost of debt is 9 percent. There is no corporate tax. a. What is the company's cost of equity capital? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b-1. What would the cost of equity be if the debt-equity ratio were 2? Note: Do not round intermediate calculations and enter your answer as a percent rounded to the nearest whole number, e.g., 32. b-2. What would the cost of equity be if the debt-equity ratio were .4? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b-3. What would the cost of equity be if the debt-equity ratio were zero? Note: Do not round intermediate calculations and enter your answer as a percent rounded to the nearest whole number, e.g., 32. X Answer is complete but not entirely correct. a. Cost of equity b-1. Cost of equity b-2. Cost of…
A firm has an ROE of 2%, a debt/equity ratio of 0.6, a tax rate of 30%, and pays an interest rate of 7% on its debt. What is its operating ROA? (Do not round intermediate calculations. Round your answer to 2 decimal places.) ROA %
Ursala, Incorporated, has a target debt-equity ratio of 1.43. Its WACC is 9.4 percent, and the tax rate is 25 percent. a. If the company's cost of equity is 15 percent, what is its pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If instead you know that the aftertax cost of debt is 6.2 percent, what is the cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of debt b. Cost of equity % %
Butler, Inc., has a target debt-equity ratio of 1.60. Its WACC is 7.8 percent, and the tax rate is 25 percent. a. If the company's cost of equity is 12.9 percent, what is its pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If instead you know that the aftertax cost of debt is 4.3 percent, what is the cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Pretax cost of debt % b. Cost of equity %
You've collected the following information about Caccamisse, Incorporated: Sales Net income Dividends Total debt Total equity = a. Sustainable growth rate b. Additional borrowing c. Growth rate = = = = $ 330,000 $ 18,700 $ 7,500 $ 70,000 $ 101,000 a. What is the sustainable growth rate for the company? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. Assuming it grows at this rate, how much new borrowing will take place in the coming year, assuming a constant debt-equity ratio? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What growth rate could be supported with no outside financing at all? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. % %

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