Company 7 has 10% debt and a cost of debt of 5.5%. The firm's WACC is currently 11.35%. Assume there are no taxes and that the Modigliani-Miller theorem holds. A. What is the company's cost of equity? B. If the company converts to 25% debt, what will its cost of equity be? What is the company's WACC? C. If the company converts to 50% debt, what will its cost of equity be? What is the company's WACC in this case?

Company 7 has 10% debt and a cost of debt of 5.5%. The firm's WACC is currently 11.35%. Assume there are no taxes and that the Modigliani-Miller theorem holds. A. What is the company's cost of equity? B. If the company converts to 25% debt, what will its cost of equity be? What is the company's WACC? C. If the company converts to 50% debt, what will its cost of equity be? What is the company's WACC in this case?

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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Wako and Sons Inc. has no debt, a WACC of 14% and a tax rate of 40%. If the company chooses to change its capital structure to a debt equity ratio of 40% (D/E=0.4), what is the new cost of equity RE? a. 17.4% b. 22.4% c. 19.0% d. 19.6% e. None of the above.
Take It All Away has a cost of equity of 10.45 percent, a pretax cost of debt of 5.21 percent, and a tax rate of 21 percent. The company's capital structure consists of 65 percent debt on a book value basis, but debt is 25 percent of the company's value on a market value basis. What is the company's WACC? Multiple Choice ● O O O 9.14% 8.17% 12.39% 9.75% 8.87%
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Horford Co. has no debt. Its cost of capital is 10 percent. Suppose the company converts to a debt-equity ratio of 1. The interest rate on the debt is 7.1 percent. Ignore taxes for this problem. a.What is the company’s new cost of equity? b.What is its new WACC?
Micolash Industries plans to reduce the use of debt financing and increase the use of equity financing (for example, move from a 70% Debt-to-Capital Ratio to 50%). Assume that the company, which does not pay any dividends, takes this action, and that total assets, operating income (EBIT), and its tax rate (say 40%) all remain constant. Which of the following would occur? Group of answer choices The company’s interest expense would remain constant. The company would have less common equity than before. The company’s taxable income (EBT) would fall. The company would have to pay more taxes. The company’s net income would decrease.
Crowley Company has a capital structure with 30% debt at a 9% interest rate. Its beta is 1.3, the risk-free rate is 1.5%, and the market risk premium is 8%. The company has no preferred stock. Its combined federal-plus-state tax rate is 25%. a. Calculate the company's cost of equity b. Calculate the company's weighted average cost of capital c. Calculate he the company’s unlevered cost of equity
Abacus Company has 30% debt and 70% equity. The borrowing rate is 12%. (1) If you own 5% of the stock of Abacus, what is your dollar return if the overall capitalization rate, Ko, is 20%? (2) What is the implied required rate of return on equity if the total value of the firm is 1,500,000? Select one: a. None of the other three answers b. Dollar return=246000. c. Dollar return3D12300. d. Dollar return=54000.
CoffeeCarts has a cost of equity of 15.1%, has an effective cost of debt of 3.8%, and is financed 69% with equity and 31% with debt. What is this firm's WACC? CoffeeCarts's WACC is __ % ? (Round to one decimal place.)
Alpha Co. has a debt-equity ratio of 0.6, a pretax cost of debt of 7.5 percent, and an unlevered cost of equity of 12 percent. What is Alpha's cost of equity if you ignore taxes? Multiple choice question. 16.5% 9.3% 14.7% 12% Explain why
Winter's Toyland has a debt-equity ratio of 1.00. The cost of debt is 10 percent and the required return on assets is 18 percent. What is the cost of equity if you ignore taxes? Write your answer as a percent rounded to two digits, but don't include the % sign (.e. write 12.63, not 0,1263) Numeric Response
Majan Mining has found that its cost of common equity capital is 17 percent and its cost of debt capital is 6 percent. If the firm is financed with OMR 3,000,000 of common shares (market value) and OMR 2,000,000 of debt, then what is the after-tax weighted average cost of capital for Majan Mining if it is subject to a 40 percent marginal tax rate? Select one: O a. 11.50 b. 14.57 O c. 11.64 O d. None of these
23) can i please get help?

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