Gaucho Services starts life with all-equity financing and a cost of equity of 13%. Suppose it refinances to the following market value capital structure: Debt (D) Equity (E) 59% a. Return on equity b. After-tax WACC at p= 8.68 a. Use MM's proposition 2 to calculate the new cost of equity. Gaucho pays taxes at a marginal rate of 30%. b. Calculate Gaucho's after-tax weighted-average cost of capital Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.

Gaucho Services starts life with all-equity financing and a cost of equity of 13%. Suppose it refinances to the following market value capital structure: Debt (D) Equity (E) 59% a. Return on equity b. After-tax WACC at p= 8.68 a. Use MM's proposition 2 to calculate the new cost of equity. Gaucho pays taxes at a marginal rate of 30%. b. Calculate Gaucho's after-tax weighted-average cost of capital Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.

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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Gaucho Services starts life with all-equity financing and a cost of equity of 14%. Suppose it refinances to the following market-value capital structure:Debt (D) 45% at rD = 9.5%Equity (E) 55%Use MM’s proposition 2 to calculate the new cost of equity. Gaucho pays taxes at a marginal rate of T c = 40%. Calculate Gaucho’s after-tax weighted-average cost of capital.
Gaucho Services starts life with all-equity financing and a cost of equity of 15%. Suppose it refinances to the following market-value capital structure: Debt (D) 46% at rD = 9.6% Equity (E) 54% Use MM’s proposition 2 to calculate the new cost of equity. Gaucho pays taxes at a marginal rate of Tc = 35%. Calculate Gaucho’s after-tax weighted-average cost of capital.
You have the following information on a company on which to base your calculations and discussion: Cost of equity capital (rE) = 18.55% Cost of debt (rD) = 7.85% Expected market premium (rM –rF) = 8.35% Risk-free rate (rF) = 5.95% Inflation = 0% Corporate tax rate (TC) = 35% Current long-term and target debt-equity ratio (D:E) = 2:5 a. What are the equity beta (bE) and debt beta (bD) of the firm described above?[Hint: Assume that the above costs of capital have been generated by an appropriate equilibrium model.] b. What is the weighted-average cost of capital (WACC) for this firm at the current debt-equity ratio? c. What would the company’s cost of equity capital become if you unlevered the capital structure (i.e. reduced gearing until there is no debt)
A firm had a debt ratio of 0.85. The pretax cost of debt is 8% and the reqiured return on asset is 15.5%. What is the cost of equity if we factorin the firms tax rate of 24%? A) 19.53 B) 18.92 C) 21.57 D) 20.35 E) 20.96
Gates Appliances has a return-on-assets (investment) ratio of 20 percent. a. If the debt-to-total-assets ratio is 25 percent, what is the return on equity? (Input your answer as a percent rounded to 2 decima) places.) b. If the firm had no debt, what would the return-on-equity ratio be? (Input your answer as a percent rounded to 2 decimal places.)
Calculate the cost of equity with the CAPM Calculate the cost od debt based on what the company is currently paying for its debt - Beta of the industry = 1.16 - Equity Risk Premium = 6.97% - Risk-free rate = 3.77% - Objective capital structure of the industry = 13.24%
An all equity firm announces that it is going to borrow $11 million in debt and then keep that debt at a constant value relative to the overall value of the company. What would be the appropriate discount rate for the expected interest tax shields generated by this additional debt? A. Required return on debt B. Required return on equity C. Required return on Assets D. WACC
You have the following data for your company. Market Value of Equity: $520 Book Value of Debt: $130 Required rate of return on equity: 12% Required rate of return on debt (pre-tax): 7% Corporate tax rate: 25% The company's debt is assumed to be is reasonably safe, so the book value of debt is a reasonably approximation for the market value of debt. What is the weighted average cost of capital for this company?
Caddy manufacturing has a target debt equity ratio of .45. Its cost of equity is 10.3%, and its pre- tax cost of debt is 6.4%. If the tax rate is 21%, what is the company's WACC ? Pls type in computer! Thanks
The ABCCompany has a cost of equity of 21.2 percent, a pre-tax cost of debt of 5.2percent, and a tax rate of 30 percent. What is the firmâ€™s weighted average costof capital if the proportion of debt is 65.6%?Note: Enter your answer rounded off to two decimal points.Do not enter % in the answer box. For example, if your answer is 0.12345 thenenter as 12.35 in the answer box.
Hilltop Paving has a levered equity cost of capital of 14.92 percent. The debt-to-value ratio is .4, the assumed tax rate is 23 percent, and the pretax cost of debt is 7.2 percent. What is the estimated unlevered cost of equity?
Oblib Inc. has a debt-equity ratio of 2, and a weighted average flotation cost of 4%. What is the dollar flotation cost if the company were to raise $1.5 million in the capital market? Please if you can, show all calculations

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