onsider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and as a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. Using the answers from Questions 7 and 8, what is the firm’s WACC?
Q: Arcadia health has $10 million invested in long term corporate bonds. This bond portfolio’s expected…
A: Given: Amount invested = $10 million Portfolio Expected annual return = 9% Portfolio Standard…
Q: You are analyzing the after-tax cost of debt for a firm. You know that the firm’s 12-year maturity,…
A: Note: Since here Face Value is not given, It is assumed out to be $1000, and accordingly the…
Q: ABC Inc. recently is doing the following financing: (1) The firm's non-callable bonds mature in 20…
A:
Q: company is financed by both debt and common equity, and the market value of debt is 25% and equity…
A: The question is related to Cost of Capital and is related with Capital Asset Pricing Model (CAPM).…
Q: The total book value of WTC’s equity is $10 million, and book value per share is $16. The stock has…
A: we need market value of equity and bonds to find WACC so, market value of share / 16(book value of…
Q: Calculating the WACC In the previous problem, suppose the company's stock has a beta of 1.10. The…
A: Capital structure refers to the proportion of debt and equity capital raised by the company in order…
Q: Determine the company’s WACC
A: WACC: WACC (weighted average cost of capital) is the cost of capital of the firm. It is composed of…
Q: AllCity, Inc., is financed 44% with debt, 15% with preferred stock, and 41% with common stock. Its…
A: The Weighted average cost of capital(WACC) refers to the method in which each category of capital is…
Q: Currently, Bloom Flowers Inc. has a capital structure consisting of20% debt and 80% equity. Bloom's…
A: Weighted Average Cost of Capital is an indicator of the combined cost of debt and equity capital…
Q: You would like to know the beta of debt for cooper Industries. The value of coopers outstanding…
A: Unlevered beta (or asset beta) measures the market risk of the company without the impact of debt.…
Q: The total market value of the common stock of the Okefenokee Real Estate Company is $7.5 million,…
A: As the student has asked the 4th parts. Therefore, I'm answering the 4th part only. Required return…
Q: onsider a firm whose debt has a market value of $35 million and whose stock has a market value of…
A: GIVEN, DEBT = $35 EQUITY=$55 rf = 1% beta = 1.23 risk premium = 10.5%
Q: Consider a firm whose debt has a market value of $35 million and whose stock has a market value of…
A: Pre-tax cost of Debt = 7% Tax Rate = 21% Post Tax cost of debt = Pre-Tax cost of debt *(1- tax rate)
Q: The total market value of the common stock of the Okefenokee Real Estate Company Is $7.5 million,…
A: Cost of equity represents the rate of return to be received by the equity owners for their capital…
Q: A firm has outstanding debt with a coupon rate of 8%, nine years maturity, and a price of $1,000…
A: Yield to maturity is equal to par value of coupon rate , Bond is equal to par value and as it same…
Q: Morrison Medical Inc., an all-equity firm, has earnings before interest and taxes of $950,000, an…
A: Value of the firm is the value which is a firm needs to pay in order to acquire it.
Q: Morrison Medical Inc., an all-equity firm, has earnings before interest and taxes of $950,000, an…
A: Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…
Q: Suppose your company needs to raise $15 million and you want to issue 6-year bonds for this purpose.…
A: Here, Note: As here nothing is given in the question regarding the par value of both the bond, we…
Q: If the financial Manager of Evergreen wants to decrease its cost of capital by adding more debt to…
A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…
Q: XYZ is currently an all-equity firm with a total market value of $1,000,000. Earnings before…
A: A firm's capital structure represents different sources of capital such as equity and debt invested…
Q: A company has $5 million in debt outstanding with a coupon rate of 12%. Currently, the yield to…
A: The provided information are: Tax rate = 40% = 0.40 Yield to maturity = 0.14
Q: A company needs to raise $20 million and is considering issuing 5-year bonds for this purpose.…
A: The bonds are redeemed at their par-value with regular coupon payments but when bonds are not…
Q: Suppose that LilyMac Photography expects EBIT to be approximately $46,000 per year for the…
A: The taxable income is calculated with the help of following formula Taxable Income = EBIT -…
Q: The total market value of the common stock of the Okefenokee Real Estate Company is $7.5 million,…
A: According to the rule, we will only answer the first three subparts, ofr the remaining subparts,…
Q: The total market value of the common stock of the Okefenokee Real Estate Company is $8 million, and…
A:
Q: Suppose a firm has $10 million in debt that it expects to hold in perpetuity. It the interest rate…
A: The following information has bee provided in the question: Amount of debt= $10 million Interest…
Q: A Company is 40% financed by risk-free debt. The interest rate is 8%, the expected market risk…
A: Assumption:The risk-free rate of return is assumed as 8%.
Q: The total value (debt plus equity) of Wilson Dover Inc. is $500 million and the face value of its…
A: Yield on debt can be calculated by using this equation Yield on debt =Coupon debtDebt valuen -1
Q: Assume JUP has debt with a book value of $19 million, trading at 120% of par value. The bonds have a…
A:
Q: The total book value of WTC's equity is $10 million, and book value per share is $20. The stock has…
A: Market to book ratio = 1.5 Book value of equity = $10 Million --------------------------------------…
Q: Consider a firm whose debt has a market value of $35 million and whose stock has a market value of…
A: According to the rule, because you have posted multiple questions, we will answer the first question…
Q: Titan Mining Corporation has 9 million shares of common share outstanding and 120,000 semiannual…
A: Given information: Number of common shares outstanding is 9 million and sells for $34 per share…
Q: Assuming that company A has: 50,000 bonds with a face value of 1.000 yuan, a coupon rate of 5%, and…
A: Cost of debt = Kd = after tax yield of bond = Y* (1 -t) , where t = tax rate Since, question is…
Q: The common stock of Buildwell Conservation & Construction, Inc. (BCCI), has a beta of .8. The…
A: In the given question we require to calculate the BCCI’s cost of equity capital and its WACC and in…
Q: WACC
A: Formulas: WACC or weighted average cost of capital = weight of debt*cost of debt*(1-tax rate) +…
Q: AllCity, Inc., is financed 40% with debt, 10% with preferred stock, and 50% with common stock. Its…
A: The Weighted average cost of capital(WACC) refers to the method in which each category of capital is…
Q: A company has $5 million in debt outstanding with a coupon rate of 12%. Currently, the yield to…
A: Bonds are the debt obligations of a business on which it requires to pay regular interest to the…
Q: BHP Billiton, An Australian company's stock, has a beta of 0.80. The expected return on the market…
A: Beta of stock is 0.80 Expected return on market is 12% Risk free rate is 3.4% EBIT is $3.15 million…
Q: Your company issued risky debt with a 25,000,000 USD face value and an annual coupon. Its perpetual…
A: Since, given beta is unlevered which doesn't represent the risk profile of the company, we first…
Q: A company has outstanding 20-year noncallable bonds with a face value of $1,000,an 11% annual…
A: Required rate of interest is the return provided by the bond. At required rate, the present value of…
Q: Clifford Chance is a large U.K. firm with the before tax cost of debt of 10%. The risk-free rate of…
A: Weighted average cost of capital is effective cost incurred by company on its capital structure
Q: The total market value of the common stock of the Okefenokee Real Estate Company is $8 million, and…
A: Required rate of return: When an investor invests in a project, then the investor assesses the…
Q: The market value of Company A's common stock is $25 million, and the market value of its risk-free…
A: Company’s COC or WACC means overall cost of funds raise from different sources. It can be computed…
Consider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and as a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. Using the answers from Questions 7 and 8, what is the firm’s WACC?
Step by step
Solved in 2 steps
- Assume that the dividend payout ratio will be 55 percent when the rate on long-term government bonds falls to 9 percent. Because investors are becoming more risk averse, the equity risk premium will rise to 8 percent and investors will require a 7 percent return. The return on equity will be 13 percent. What is your expectation of the market P/E ratio?Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, A-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Rate Spread = DRP + LP U.S. Treasury 0.83 % — AAA corporate 1.03 0.20 % AA corporate 1.39 0.56 A corporate 1.79 0.96 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: fill in the blank _ % 7-year Corporate yield: fill…for question 9 Ch. 13. For questions 7, 8, and 9, use the following information: 7.) Consider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and has a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. What is the aftertax cost of debt? Format as a percentage and round to two places past the decimal point as "X.XX" 5.53 8.) Consider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and has a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. Using the pretax cost of…
- Nodebt Inc. is a firm with all-equity financing. Its equity beta is 0.80. The Treasury bill rate is 3%, and the market risk premium is expected to be 7%. a. What is Nodebt’s asset beta? (Round your answer to 2 decimal places.) b. What is Nodebt’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, AA-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Rate Spread = DRP + LP U.S. Treasury 0.73 % — AAA corporate 0.93 0.20 % AA corporate 1.33 0.60 A corporate 1.75 1.02 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: 6.553%----->correct 7-year Corporate yield: ? %…Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, AA-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Rate Spread = DRP + LP U.S. Treasury 0.73 % — AAA corporate 0.93 0.20 % AA corporate 1.33 0.60 A corporate 1.75 1.02 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: 10.533 % 7-year Corporate yield: 9.597% Given…
- he total market value of the equity of Okefenokee Condos is $6 million, and the total value of its debt is $4 million. The treasurer estimates that the beta of the stock currently is 2.0 and that the expected risk premium on the market is 5%. The Treasury bill rate is 3%, and investors believe that Okefenokee's debt is essentially free of default risk. a. What is the required rate of return on Okefenokee stock? (Do not round intermediate calculations. Enter your answer as a whole percent.) b. Estimate the WACC assuming a tax rate of 21%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. Estimate the discount rate for an expansion of the company’s present business. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) d. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is 2.2. What is the…Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, AA-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years, 4% for the following 4 years, and 5% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.2%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Rate Spread = DRP + LP U.S. Treasury 0.83 % — AAA corporate 1.03 0.20 % AA corporate 1.39 0.56 A corporate 1.75 0.92 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: fill in the blank 7 % 7-year Corporate yield: fill in the blank 8 %The total market value of the equity of Okefenokee Condos is $12 million, and the total value of its debt is $8 million. The treasurer estimates that the beta of the stock currently is 1.5 and that the expected risk premium on the market is 6%. The Treasury bill rate is 3%, and investors believe that Okefenokee's debt is essentially free of default risk. a. What is the required rate of return on Okefenokee stock? Note: Do not round intermediate calculations. Enter your answer as a whole percent. b. Estimate the WACC assuming a tax rate of 21%. Note: (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. c. Estimate the discount rate for an expansion of the company's present business. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. d. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is 2.0.…
- Nodebt Inc. is a firm with all-equity financing. Its equity beta is 0.80. The Treasury bill rate is 5%, and the market risk premium is expected to be 10%. a. What is Nodebt's asset beta? (Round your answer to 2 decimal places.) Asset beta b. What is Nodebt's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) WACC %The total market value of the equity of Okefenokee Condos is $6 million, and the total value of its debt is $4 million. The treasurer estimates that the beta of the stock currently is 0.5 and that the expected risk premium on the market is 12%. The Treasury bill rate is 4%, and investors believe that Okefenokee's debt is essentially free of default risk. a. What is the required rate of return on Okefenokee stock? (Do not round intermediate calculations. Enter your answer as a whole percent.) b. Estimate the WACC assuming a tax rate of 21%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. Estimate the discount rate for an expansion of the company’s present business. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) d. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is 1.5. What is the…The total market value of the equity of Okefenokee Condos is $8 million, and the total value of its debt is $2 million. The treasurer estimates that the beta of the stock currently is 0.6 and that the expected risk premium on the market is 10%. The Treasury bill rate is 4%, and investors believe that Okefenokee's debt is essentially free of default risk. a. What is the required rate of return on Okefenokee stock? (Do not round intermediate calculations. Enter your answer as a whole percent.) b. Estimate the WACC assuming a tax rate of 21%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. Estimate the discount rate for an expansion of the company’s present business. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) d. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is .8. What is the…