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Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
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- Baker Industries' net income is $27, 000, its interest expense is $4,000, and its tax rate is 25%. Its notes payable equals $27, 000, long-term debt equals $75,000, and common equity equals $250,000. The firm finances with only debt and common equity, so it has no preferred stock. What are the firm's ROE and ROIC? Do not round intermediate calculations. Round your answers to two decimal places.Baker Industries’ net income is $24,000, its interest expense is $4,000, and its tax rate is 25%. Its notes payable equals $25,000, long-term debt equals $70,000, and common equity equals $250,000. The firm finances with only debt and common equity, so it has no preferred stock. What are the firm’s ROE and ROIC? Do not round intermediate calculations. Round your answers to two decimal places. ROE: 9.6 % ROIC: %baker industries net income is $24,000 ,its interest expense is $6000, and its take rate is 40%. it notes payable equals 23,000 , long term debt equals 70,000, and common equity equals 240,000. the firm's finances with only debt and common equity, so it has no preferred stock. What is the firm’s ROE and ROIC ?
- Baker Industries’ net income is $24000, its interest expense is $4000, and its tax rate is 45%. Its notes payable equals $24000, long-term debt equals $70000, and common equity equals $240000. The firm finances with only debt and common equity, so it has no preferred stock. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet. What are the firm’s ROE and ROIC? Round your answers to two decimal places. Do not round intermediate calculations. ROE fill in the blank % ROIC fill in the blank %The Rivoli Company has no debt outstanding, and its financial position is given by the following data: What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share? Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Based on the new capital structure, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? Based on the new capital structure, what is the new stock price? What is the remaining number of shares? What is the new earnings per share?s 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 c. If the firm converts to 50 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 d-1 If the firm converts to 20 percent debt, what is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC % WACC…
- Assume that you are a consultant to Broske Inc., and you have been provided with the following data: The company pays a fixed annual dividend of $4.8 per share and its current stock price is $50. The company is operating in a mature industry and not expected to grow at all. What is the cost of equity for the company?Baker Industries’ net income is $26000, its interest expense is $5000, and its tax rate is 45%. Its notes payable equals $25000, long-term debt equals $70000, and common equity equals $260000. The firm finances with only debt and common equity, so it has no preferred stock. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet What are the firm’s ROE and ROIC? Round your answers to two decimal places. Do not round intermediate calculations.Baker Industries’ net income is $26000, its interest expense is $6000, and its tax rate is 40%. Its notes payable equals $26000, long-term debt equals $70000, and common equity equals $255000. The firm finances with only debt and common equity, so it has no preferred stock. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. What are the firm’s ROE and ROIC? Round your answers to two decimal places. Do not round intermediate calculations. ROE fill in the blank 2% ROIC fill in the blank 3% Please don't provide image based solution thanks
- Baker Industries’ net income is $24000, its interest expense is $6000, and its tax rate is 40%. Its notes payable equals $27000, long-term debt equals $80000, and common equity equals $250000. The firm finances with only debt and common equity, so it has no preferred stock. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. ROE and ROIC Net income $24,000 Interest expense $6,000 Tax rate 40.00% Notes payable $27,000 Long-term debt $80,000 Common equity $250,000 Formulas ROE #N/A Partial Income Statement: EBIT #N/A Interest $6,000.00 EBT #N/A Taxes #N/A Net income $24,000.00 Capital Summary: Notes payable $27,000.00 Long-term debt $80,000.00 Common equity $250,000.00 Total invested…Baker Industries’s net income is $24,000, its interest expense is $5,000, andits tax rate is 40%. Its notes payable equals $27,000, long-term debt equals $75,000, and commonequity equals $250,000. The firm finances with only debt and common equity, so it hasno preferred stock. What are the firm’s ROE and ROIC?Portneuf Industries has a debt-equity ratio of 1.5. Its WACC is 8.4%, and its cost of debt is 5.9%. The corporate tax rate is 35%. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) a. What is the company's cost of equity capital? Cost of equity capital b. What is the company's unlevered cost of equity capital? Unlevered cost of equity capital 2.65 % c-1. What would the cost of equity be if the debt-equity ratio were 2? Cost of equity 2.65 % Cost of equity 0.73 % c-2. What would the cost of equity be if the debt-equity ratio were 1.0? Cost of equity c-3. What would the cost of equity be if the debt-equity ratio were zero? 11.5% %