Ghirardelli currently has no loans. The company's cost of capital is 9 percent annually. Ghirardelli expects a cash inflow of $135,000 in annual earnings before interest and taxes, forever. The company faces a 23 % tax rate on all taxable income. If Ghirardelli does decide to borrow money, it will do so by issuing corporate bonds. If this happens, the interest rate on the bonds will be 6%. a. Ghirardelli's cost of equity will equal if it borrows $183,000 and uses it to back its shares of stock. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. Continue part (a)- In addition, in this case Ghirardelli's weighted average cost of capital will equal (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Ghirardelli currently has no loans. The company's cost of capital is 9 percent annually. Ghirardelli expects a cash inflow of $135,000 in annual earnings before interest and taxes, forever. The company faces a 23 % tax rate on all taxable income. If Ghirardelli does decide to borrow money, it will do so by issuing corporate bonds. If this happens, the interest rate on the bonds will be 6%. a. Ghirardelli's cost of equity will equal if it borrows $183,000 and uses it to back its shares of stock. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. Continue part (a)- In addition, in this case Ghirardelli's weighted average cost of capital will equal (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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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A firm is proceeding with a bond issue to raise (borrow) $100 million. The interest rate is the cost of debt of 8%, and interest will be paid annually for the nine (9) year term of the debt. If the company's tax rate is 30%, what is the present value of the total interest tax shields of this nine-year debt? A. $30.0 million B. $15.0 million C. $20.5 million D. $8.0 million
Yosemite Corporation has an outstanding debt of $10.03 million on which it pays a 5 percent fixed interest rate annually. Yosemite just made its annual interest payment and has three years remaining until maturity. Yosemite believes that interest rates will fall over the next three years and that floating-rate debt will allow it to reduce its overall borrowing costs. A bank offers Yosemite a three-year interest rate swap with annual payments in which Yosemite will pay LIBOR, currently at 4.2 percent, and receive a 3.7 percent fixed rate on $10.03 million notional principal. Suppose that LIBOR turns out to be 3.6 percent in one year and 3.3 percent in two years. Including Interest payments on Yosemite's outstanding debt and payments on the swap, what will be Yosemite's net interest payments for the next three years? Note: Negative values should be indicated by parentheses. Answer is complete but not entirely correct. Net Interest Payments Year 11 $ (180,540) Year 21 $ (120,360) Year 3 $…
Mr.Ali Dam Construction LTD borrowed 500.000.000 $ from the bank for Tacima Dam with 80% interest in the first place and increased this amount by 60.000.000 $ every year a)What is his debt to the bank after 10 years? b)How much would the debt have been if he had taken it all at once instead of doing so? c)What would be the money he would withdraw from the bank every year for 10 years if he borrowed equally every year?d)What would be the consequences if he received the money at the beginning of the semester?
You have been living in the house you bought 7 years ago for $300,000. At that time, you took out a loan for 80% of the house at a fixed rate 15-year loan at an annual stated rate of 8.0%. You have just paid off the 84th monthly payment. Interest rates have meanwhile dropped steadily to 6.0% per year, and you think it is finally time to refinance the remaining balance over the residual loan life. But there is a catch. The fee to refinance your loan is $5,000. Should you refinance the remaining balance? How much would you save/lose if you decided to refinance? a. Yes, gain $7,287.20 b. No, lose $12,287.20 c. Yes, gain $12,287.20 d. No, lose $7,287.20
3. Mr. H needs to borrow $13,000 for 3 years. He has a poor financial history, most lenders are willing to charge him a higher interest rate. He eventually finds a lender who would lend him the money at a rate of 15% per annum, compounded monthly. How much will Mr. H have to pay in compound interest to the lender? O O A) The compound interest Mr. H will have to pay is $7,331.22. The compound interest Mr. H will B) have to pay is $7,891.21. The compound interest Mr.H will C) have to pay is $5, 745.86. The compound interest Mr. H will D) have to pay is $6,777.07.
Darnell receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 20%. The following table shows two scenarios: a low-inflation scenario and a high-inflation scenario. Given the real interest rate of 4% per year, find the nominal interest rate on Darnell's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate Real Interest Rate Nominal Interest Rate After-Tax Nominal Interest Rate After-Tax Real Interest Rate (Percent) (Percent) (Percent) (Percent) (Percent) 2.5 4.0 8.5 4.0 Compared with higher inflation rates, a lower inflation rate will the after-tax real interest rate when the government taxes…
Yosemite Corporation has an outstanding debt of $10.12 million on which it pays a 5 percent fixed interest rate annually. Yosemite Just made its annual interest payment and has three years remaining until maturity. Yosemite believes that interest rates will fall over the next three years and that floating-rate debt will allow it to reduce its overall borrowing costs. A bank offers Yosemite a three-year interest rate swap with annual payments in which Yosemite will pay LIBOR, currently at 5.1 percent, and receive a 4.6 percent fixed rate on $10.12 million notional principal. Suppose that LIBOR turns out to be 4.5 percent in one year and 4.2 percent in two years. Including interest payments on Yosemite's outstanding debt and payments on the swap, what will be Yosemite's net interest payments for the next three years? Note: Negative values should be indicated by parentheses. Year 11 Year 2 Year 3 Net Interest Payments 12
Mark Motel's debt has a face value of $40 million, a coupon rate of 14% (paid semiannually), and expires in 12 years (at t = 12 . The current annual yield-to-maturity (stated) for all bonds of the company is 15%. Mark wishes to conserve cash for the next few years. To do this, Mark decides to issue new equity and use the proceeds to purchase the existing debt at the market price. The current stock price of Mark is $60 and there are 2 million shares outstanding. 1. How many shares should Mark issue to purchase the existing debt? Assume the decision to purchase the bond does not change the stock price. Instead, the company decides to issue a zero-coupon bond that matures at year 5, and use the proceeds to purchase the existing debt at the market price. 2. What is the face value of the zero-coupon bond that Mark needs to issue?
You are valuing a bank. The bank currently has assets of $330 per share. Five years from now (that is, at the end of five years), you expect their assets per share to be $470. After Year 5, you expect their assets per share to grow at 3.25 percent per year forever. The bank has an ROA of 2.0 percent and an ROE of 13.0 percent. The bank's cost of equity is 11.5 percent. What is the value of the bank's stock? Use the free cash flow to equity model to value this stock. Do not round intermediate calculations. Round your answer to the nearest cent. 69
Hi there, I'm trying to solve this corporate finance problem without using excel. John has a 5 year mortgage contract on $332,100 amortized over 25 years at a rate of 5% per year compounded semiannually. At the end of the 5 year contract, the outstanding principal is $250,000. John's interest rate is still the same but he wishes to switch to weekly payments. How much will John's weekly payments be?
Braxton Enterprises currently has debt outstanding of $45 million and an interest rate of 10%. Braxton plans to reduce its debt by repaying $9 million in principal at the end of each year for the next five years.If Braxton's marginal corporate tax rate is 21%, what is the interest tax shield from Braxton's debt in each of the next five years? (Round to three decimal places.)
1.I want to have $2,000,000 saved by retirement. How much do I need to save each year for 40 years if the rate-of-return is 8%? 2.Company X is issuing bonds. They plan to issue 10,000, $1000 par, 6% bonds that pay semi-annual for 5 years. What are the proceeds from this bond sale if the market rate is 7%? 3.If I think I need $100,000 a year in retirement for 30 years, how much do I need at retirement if the rate-of-return is 8%? 4.Company X is issuing bonds. They plan to issue 10,000, $1000 par, 6% bonds that pay semi-annual for 5 years. If the bond price is $1020, what is the market annual rate-of-return? (percentage, 2 decimals, e.g. xx.xx)

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