Jenkins, Inc., has equity with a market value of $23.1 million and debt with a market valueof $9.24 million. The cost of debt is 10 percent per year. Treasury bills that mature in oneyear yield 6 percent per year, and the expected return on the market portfolio over thenext year is 11 percent. The beta of the company's equity is 1.16. The firm pays no taxes.a. What is the company's debt-equity ratio? (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g., 32.16.)b. What is the company's weighted average cost of capital? (Do not round intermediatecalculations and enter your answer as a percent rounded to 2 decimal places, e.g..32.16.)c. What is the cost of capital for an otherwise identical all-equity firm? (Do not roundintermediate calculations and enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)a. Debt-equity ratiob. Weighted average cost of capitalC.Cost of capital0.4011.29%%

The cost of capital refers to the return that the company provides to all its stakeholders for their…

Answered: Jenkins, Inc., has equity with a market…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 16P

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You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 8.2 percent coupon bonds are selling at a price of $790.40. The bonds pay interest semiannually. If these bonds are the only debt outstanding for the firm, answer the following questions - What is the after-tax cost of debt for this firm if it has a 30 percent marginal and average tax rate?
Stevenson's Bakery is an all-equity firm that has projected perpetual EBIT of $183,000 per year. The cost of equity is 13.1 percent and the tax rate is 21 percent. The firm can borrow perpetual debt at 6.3 percent. Currently, the firm is considering converting to a debt–equity ratio of .93. What is the firm's levered value? MM assumptions hold. A. $829,786 B. $1,215,262 C. $1,155,579 D. $997,511 E. $921,985

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